Oostburg State Bank v. United Sav. & Loan Ass'n

• Decision Date: 30 April 1986
• Docket Number: No. 84-472,84-472
• Citation: 386 N.W.2d 53,130 Wis.2d 4
• Parties: OOSTBURG STATE BANK, Plaintiff-Respondent-Petitioner, v. UNITED SAVINGS & LOAN ASSOCIATION, Defendant-Appellant, Auto-Owners Insurance Company, Defendant.
• Court: Wisconsin Supreme Court

Page 53

386 N.W.2d 53

130 Wis.2d 4

OOSTBURG STATE BANK, Plaintiff-Respondent-Petitioner, v. UNITED SAVINGS & LOAN ASSOCIATION, Defendant-Appellant, Auto-Owners Insurance Company, Defendant.

No. 84-472.

Supreme Court of Wisconsin.

Argued April 1, 1986.

Opinion Filed April 30, 1986.

Arthur J. Olsen, argued, Sheboygan, for plaintiff-respondent-petitioner; James O. Conway and Chase, Olsen, Kloet & Gunderson, on brief.

Edward A. Dudek, argued, Milwaukee, for defendant-appellant; Thomas J. Arenz, Michael J. Lund and Frisch, Dudek and Slattery, Ltd., on brief.

DAY, Justice.

This is a review of a published decision of the court of appeals, Oostburg State Bank v. United Savings & Loan, 125 Wis.2d 224, 372 N.W.2d 471 (Ct.App.1985), reversing a default judgment and a decision and order of the Circuit Court for Sheboygan county, Honorable John Bolgert, circuit judge, and remanding the matter for further proceedings. The decision and order denied United Savings & Loan Association's (Defendant's) motions to vacate and relieve it from the orders of January 11, 1984, striking its answer and granting Plaintiff's motion for default judgment; to extend the time in which to answer; and, to relieve it from the default judgment granted January 11, 1984, and entered January 18, 1984. The issue on review is: Did the Defendant serve its answer within the time limits prescribed by Oostburg State Bank (Plaintiff) in its letter terminating the "courtesy agreement" between the attorneys, thereby making it error for the trial court to grant the default judgment. We hold that the Defendant's answer was timely, and therefore, the trial court erroneously granted the default judgment.

The material facts are undisputed. On September 29, 1983, Plaintiff filed and served Defendant with a summons and complaint alleging damages in the amount of $302,817.15. ¹ On October 12, 1983, Attorney James O. Conway (Conway), one of the attorneys for the Plaintiff, received a telephone call from Attorney Thomas Klug (Klug). Klug informed Conway that his firm, Borgelt, Powell, Peterson and Frauen, S.C., had been retained by the Defendant and requested an extension of time to answer the complaint. Conway orally agreed to an extension, but no time limit was placed on the extension. Klug confirmed the oral agreement in a "blind postscript" to a letter received by Conway on October 15, 1983, which stated: "We are in the process of preparing a responsive pleading to the Complaint in this matter. This will confirm our telephone conversation of October 12, 1983 at which time you were gracious enough to grant us a brief extension of time in which to responsively plead." (Emphasis added.)

On November 30, 1983, a hearing was held on the motion of Plaintiff's bonding agent, Auto-Owners Insurance Company, to intervene in the lawsuit. Attorney Steven G. Mocarski (Mocarski), a member of Klug's law firm, appeared on behalf of the Defendant. At the hearing, Conway requested that Mocarski file Defendant's answer as soon as possible. Conway repeated this request in a letter to Mocarski, dated December 6, 1983, which stated, "I would appreciate receiving a copy of your Answer as soon as possible." Subsequently, on December 15, 1983, Conway contacted Mocarski by telephone and requested that the answer be filed as soon as possible.

In a letter dated and mailed on December 21, 1983, which was addressed to Mocarski and Klug, Conway acknowledged the extension agreement, and recited his previous efforts to obtain Defendant's answer. He further stated, "I will be compelled to move the Court for entry of a Default Judgment unless I receive your Answer within ten (10) days." It is undisputed that Klug did not receive the letter until December 27, 1983. ²

On January 3, 1984, Conway filed a notice of motion and motion for default with a supporting affidavit, claiming that more than ten days had elapsed. Copies of these papers were received by Klug's firm on January 4, 1984, and came to Klug's attention on January 5, 1984. The motion hearing was set for January 11, 1984.

During a January 6, 1984, telephone conversation, Klug informed Conway that the answer was prepared and would be served by mail that day. Conway advised Klug he would not withdraw the motion for default judgment. Defendant's answer was served on the Plaintiff, by mail, on January 6, 1984, and was received by Conway and filed with the court by Klug on January 9, 1984. On January 10, 1984, Klug spoke with Attorney Arthur J. Olsen (Olsen), who was in charge of Plaintiff's case during Conway's absence, and explained that there had been some confusion between himself and Mocarski in handling the file, and that Mocarski left the firm on short notice. Olsen would not withdraw the motion for default judgment.

At the January 11, 1984 hearing, Olsen argued that no excusable neglect was shown for Defendant's untimely answer, and that the answer should be dismissed or disregarded. In response, Klug apologized and took responsibility for any perceived delay or discourtesy. The trial court granted the motion for default judgment, finding that Defendant was in default and that no good cause or excusable neglect for the default was shown.

Klug promptly filed motions to reconsider, to extend the time to answer, and to allow the answer filed January 9, 1984, to stand as Defendant's answer. On January 18, 1984, the trial court rendered its oral judgment, striking Defendant's answer and granting Plaintiff's motion for default judgment.

Defendant retained additional counsel and filed motions to extend the time to answer and to accept the answer filed on January 9, 1984; to vacate and relieve Defendant of the orders entered January 11, 1984; and, to relieve Defendant of the judgment rendered January 18, 1984. Defendant also filed affidavits claiming that its answer was timely, that the notice terminating the extension agreement was inadequate, and that if the answer was late, it was due to excusable neglect.

A hearing was held on the Defendant's motions. In its decision, dated March 16, 1984, the trial court denied Defendant's motions to set aside the default judgment and to extend the time to answer. It found that the extension agreement was not a valid contract, and was at most a courtesy agreement, imposing only ethical obligations on the parties to the agreement. Such agreements, stated the court, are not valid nor given standing by the court unless the court is advised of and approves of the agreement. Section 807.05, Stats. ³ The court concluded that Conway had a right to insist that the answer be filed upon the expiration of a reasonable time following the agreement. While Conway had no legal obligation to give the ten day notice, the court held that such notice was reasonable.

The trial court also found that Defendant's answer, filed on January 9, 1984, was late under section 801.15(1) and (5), Stats. ⁴ Apparently, the trial court used the date of mailing the termination letter, December 21, 1983, rather than the date of receipt, December 27, 1983, in its computations to find that the answer was due on January 4, 1984. ⁵

The court of appeals reversed the trial court's decision and vacated the default judgment on the grounds that Defendant's answer was served and filed within the period prescribed in the December 21, 1983 letter. It concluded that the courtesy agreement was binding because it conformed to section 807.05, Stats., and because the parties had an ethical obligation to abide by their agreement.

The court of appeals applied contract law and civil procedure rules to construe the agreement and the termination notice. It held Conway could terminate the agreement only after giving Klug reasonable notice of such intent, and that the ten day notice was reasonable. In contrast to the trial court, the court of appeals held that the ten day period ran from December 28, 1983, which was the day after Klug's receipt of the termination notice, to and included January 6, 1984, the day the answer was served. Alternatively, the court of appeals held that the trial court abused its discretion in finding inexcusable neglect and granting default. Plaintiff petitioned this court for review of the court of appeals' decision and review was granted.

The decision to grant or vacate a default judgment is within the discretion of the trial court. ⁶ Hollingsworth v. American Finance Corp., 86 Wis.2d 172, 181, 271 N.W.2d 872 (1978); Maier Const., Inc. v. Ryan, 81 Wis.2d 463, 472, 260 N.W.2d 700 (1978); Abdella v. Catlin, 79 Wis.2d 270, 274, 255 N.W.2d 516 (1977). However, the law views default judgments with disfavor, and "prefers, whenever reasonably possible, to afford litigants a day in court and a trial on the issues." Dugenske v. Dugenske, 80 Wis.2d 64, 68, 257 N.W.2d 865 (1977); see also, Hedtcke v. Sentry Ins. Co., 109 Wis.2d 461, 469, 326 N.W.2d 727 (1982); Maier Const., 81 Wis.2d at 472, 260 N.W.2d 700. An appellate court will not reverse a discretionary decision unless the trial court has abused its discretion. This court will find an abuse of discretion if the record shows that the trial court failed to exercise its discretion, the facts fail to support the trial court's decision, or this court finds that the trial court applied the wrong legal standard. Hedtcke, 109 Wis.2d at 471-472, 326 N.W.2d 727; see also, Barstad v. Frazier, 118 Wis.2d 549, 554, 348 N.W.2d 479 (1984); First Wis. Nat'l. Bank of Oshkosh v. KSW Inv., Inc., 71 Wis.2d 359, 364, 238 N.W.2d 123 (1976); Midwest Developers v. Goma Corp., 121 Wis.2d 632, 650, 360 N.W.2d 554 (Ct.App.1984). We conclude that the trial court misapplied the law in concluding that Defendant's answer was late, thereby abusing its discretion.

Conway and Klug entered into a courtesy agreement in which Conway agreed to a "brief extension of time" for Klug to file Defendant's answer. The agreement was indefinite as to its duration. Klug relied on the agreement and did not...