Rajneesh Foundation Intern. v. McGreer

• Decision Date: 31 March 1987
• Citation: 734 P.2d 871,303 Or. 139
• Parties: RAJNEESH FOUNDATION INTERNATIONAL, a non-profit corporation, Rajneesh Neo- Sannyas International Commune, an Oregon cooperative corporation, and Ma Anand Sheela, Petitioners on Review, v. Rosemary McGREER, Respondent on Review. Rosemary McGREER, Respondent on Review. v. RAJNEESH FOUNDATION INTERNATIONAL, a non-profit corporation, Rajneesh Neo- Sannyas International Commune, an Oregon cooperative corporation, Ma Anand Sheela, and Bhagwan Shree Rajneesh, Petitioners on Review. A8210-06678; A31894; S33111.
• Court: Oregon Supreme Court

Page 871

734 P.2d 871

303 Or. 139

RAJNEESH FOUNDATION INTERNATIONAL, a non-profit corporation,

Rajneesh Neo- Sannyas International Commune, an

Oregon cooperative corporation, and Ma

Anand Sheela, Petitioners on Review, v. Rosemary McGREER, Respondent on Review.

Rosemary McGREER, Respondent on Review. v. RAJNEESH FOUNDATION INTERNATIONAL, a non-profit corporation,

Rajneesh Neo- Sannyas International Commune, an Oregon

cooperative corporation, Ma Anand Sheela, and Bhagwan Shree

Rajneesh, Petitioners on Review.

A8210-06678; A31894; S33111.

Supreme Court of Oregon.

Argued and Submitted Dec. 3, 1986.

Decided March 31, 1987.

Robert J. McCrea, Eugene, argued the cause and filed the brief for petitioner on review.

Mark K. Cushing, Portland, argued the cause for respondent on review. With him on the brief were Barbee B. Lyon and Tonkin, Torp, Galen, Marmaduke & Booth, Portland.

Before PETERSON, C.J., and LENT, LINDE, CAMPBELL, CARSON and JONES, JJ.

PETERSON, Chief Justice.

This case concerns a trial court's decision to consider the legal sufficiency of pleadings against a party in default after an order of default was entered. The Court of Appeals concluded that, even if the trial court has the authority to consider whether the pleadings state a claim for relief, that issue was not properly raised by a motion to dismiss for failure to state a claim. Rajneesh Foundation v. McGreer, 80 Or.App. 168, 721 P.2d 867 (1986). We reverse.

The facts are as follows. Rajneesh Foundation International, Rajneesh Neo-Sannyas International Commune and Ma Anand Sheela (plaintiffs) filed an action for defamation against Rosemary McGreer (defendant). Defendant counterclaimed, joining Bhagwan Shree Rajneesh (Bhagwan) as an additional counterclaim-defendant. ¹ Defendant alleged that plaintiffs defamed her on three occasions and that they conspired to deprive her of her first amendment rights, giving rise to an action under 42 U.S.C. § 1985(3). Plaintiffs' answer to the counterclaim included a motion to dismiss the section 1985 counterclaim for failure to state a claim.

Bhagwan later refused to appear for deposition. As a sanction, the presiding judge ordered plaintiffs' pleadings stricken and entered an order of default in defendant's favor on her counterclaims. ORCP 69 A.

Plaintiffs thereafter filed a motion to dismiss the counterclaims on the ground that they failed to state claims for relief. The trial court denied the motion as to the defamation claims but granted it as to the section 1985 claim. Both parties appealed. Defendant argued, inter alia, that the trial court did not have the authority to consider the motion to dismiss after a default order had been entered. ² The Court of Appeals reversed, holding that the trial judge erred in considering and granting the motion to dismiss the section 1985 counterclaim.

1. The trial court's authority to consider the sufficiency of the pleadings after a default order has been entered.

Defendant argues that the effect of the default order was to admit not only the truth of the facts alleged in the counterclaims, but also that the alleged actions were illegal and caused injury. She argues that the only issue properly before the trial court judge was the measure of damages, and that the trial court erred in considering plaintiffs' motion to dismiss after the order of default had been entered.

We disagree. According to the great weight of authority, a default establishes only the truth of the factual allegations contained in the complaint and does not admit that the facts alleged constitute a valid claim for relief. Under this view, the trial court has no authority to award damages against a defaulting defendant if the complaint fails to state a cause of action. See Southern Arizona School for Boys, Inc. v. Chery, 119 Ariz. 277, 580 P.2d 738 (1978) (default judgment cannot be based on a complaint that fails to state a claim for relief; defaulting party is entitled to contest the sufficiency of the complaint on appeal); Kohlenberger, Inc. v. Tyson's Foods, Inc., 256 Ark. 584, 510 S.W.2d 555 (1974) (default admits only those facts alleged in the complaint, and if they are insufficient to support a judgment, the judgment will be reversed); Morehouse v. Wanzo, 266 Cal.App.2d 846, 72 Cal.Rptr. 607 (1968) (it is erroneous to grant a default judgment if the complaint fails to state a cause of action); Bay Prod. Corp. v. Winters, 341 So.2d 240 (Fla.App.1976) (trial court erred in entering default judgment when the complaint failed to state claims for specific performance, fraud and deceit); Olson v. Kirkham, 111 Idaho 34, 720 P.2d 217, 220 (App.1986) ("On appeal, a defaulted defendant may not challenge the sufficiency of the evidence in a default judgment, he may only contest the sufficiency of the complaint and its allegations to support the judgment."); Productora E Importadora de Papel v. Fleming, 376 Mass. 826, 383 N.E.2d 1129 (1978) (in order to support default judgment, complaint must state a claim for relief); Lindsey v. Drs. Keenan, Andrews & Allred, 118 Mont. 312, 165 P.2d 804 (1946) (judgment for damages upon a default is not justified where the complaint fails to state a cause of action); American Credit Co. v. Stuyvesant Ins. Co., 7 N.C.App. 663, 173 S.E.2d 523 (1970) (complaint which failed to state a cause of action against insurance agent could not support default judgment against him, despite absence of excusable neglect); Pennsylvania Dep't of Environmental Resources v. Allias, 20 Pa.Commw. 222 341 A.2d 226 (1975) (default judgment does not admit the sufficiency of the pleading to sustain the judgment, nor does it admit that the facts alleged constitute a cause of action).

Under Oregon law, a default judgment establishes all material facts alleged in the complaint. State ex rel Nilsen v. Cushing, 253 Or. 262, 265, 453 P.2d 945 (1969). Other Oregon caselaw suggests that a default judgment does not admit legal conclusions and that a pleading must state facts showing an entitlement to relief before a default judgment can be granted. See Bailey v. Malheur Irrigation Co., 36 Or. 54, 60, 57 P. 910 (1899); Carlson v. Bankers Discount Corp., 107 Or. 686, 215 P. 986 (1923).

Defendant cites two Oregon cases for the proposition that a trial court may not entertain a motion to dismiss for failure to state a claim for relief after an order of default has been entered. Walling v. Lebb, 140 Or. 691, 15 P.2d 370 (1932), is distinguishable because it involved a collateral attack rather than a direct appeal. See n. 3, infra. Askren v. Squire, 29 Or. 228, 232, 45 P. 779 (1896), suggests that even if the cause of action is imperfectly stated, a default judgment still is enforceable. That case involved a suit to foreclose at least eight miners' liens. The judgment was upheld even though some of the jurats on the miners' lien claim verification forms were not signed. These were technical defects and did not bar recovery. The case does not strike us as being inconsistent with a rule requiring the complaint to state a claim to support a default judgment. The case appears to hold that, after default, the pleadings should not be read narrowly, and the pleader should have the benefit of every inference in deciding whether the complaint states a claim for relief.

The rule suggested by defendant would allow her to recover damages even if it is apparent on the face of her pleading that she has suffered no legally cognizable injury. A default judgment, no less than any other judgment, must have a basis in the pleadings. The trial court acted within its authority in considering the legal sufficiency of defendant's counterclaims.

We emphasize that, following an order of default, the pleadings are not to be read technically. If the pleadings against the defaulting party imply or reasonably require an inference of facts constituting a claim for relief, they are sufficient to support a default judgment. However, if the complaint patently fails to state a valid claim for relief, a trial court may properly entertain an objection on that ground even after an order of default has been entered. ³

2. Method of raising the sufficiency of the pleadings.

The Court of Appeals held that plaintiffs' motion to dismiss was untimely and that the appropriate method of raising this issue would be a motion for relief from default under ORCP 71:

" * * * [E]ven if we were to accept plaintiffs' premise that it is a basis for relief from default that the admitted facts fail to constitute a legal claim, plaintiffs would not be assisted. They did not seek relief from default. They simply disregarded the default order and moved against the pleading. Plaintiffs' answer to the counterclaim raised the affirmative defense that defendant's '[c]omplaint and each claim thereof fails to state a claim upon which relief may be granted.' That answer was among the pleadings which were stricken as part of the process which culminated in the default order. We decline to permit plaintiffs to defeat the default order and the order striking their pleadings, neither of which they challenge, by raising under a different name the defense that they had advanced earlier in their stricken answer." 80 Or.App. at 173, 721 P.2d 867.

We might agree with the Court of Appeals that, had judgment been entered on the default, a motion under ORCP 71 would properly have raised the issue. But ORCP 71 is not applicable, for no judgment had been given when the plaintiffs' motion to dismiss was made. ⁴

In any event, plaintiffs did not seek relief from default but instead filed a motion to dismiss under ORCP 21 A. (8), which provides:

"Every defense, in law or fact, to a claim for relief in any pleading, whether a complaint, counterclaim, cross-claim or third party claim, shall be asserted in the responsive pleading thereto, except that the following defenses may at the option of the pleader be made by motion to dismiss:

" * * *

"(8) failure to...