Reliance Ins. Companies v. Thompson-Hayward Chemical Co., THOMPSON-HAYWARD

• Decision Date: 02 March 1974
• Docket Number: No. 47134,THOMPSON-HAYWARD,47134
• Citation: 519 P.2d 730,214 Kan. 110
• Parties: RELIANCE INSURANCE COMPANIES and Maryland Casualty Company, Appellees, v.CHEMICAL COMPANY, Appellant, and Huebsch Originators of Milwaukee, Wisconsin, Appellee.
• Court: Kansas Supreme Court

Page 730

519 P.2d 730

214 Kan. 110

RELIANCE INSURANCE COMPANIES and Maryland Casualty Company, Appellees, v. THOMPSON-HAYWARD CHEMICAL COMPANY, Appellant and Huebsch Originators of Milwaukee, Wisconsin, Appellee.

No. 47134.

Supreme Court of Kansas.

March 2, 1974.

Syllabus by the Court

1. Defaults are not favored in law but become necessary when the inaction of a party frustrates the orderly administration of justice.

2. The granting of relief from a default judgment rests in the sound discretion of the district court.

3. The exercise of judicial discretion requires a judge have due regard for what is just under prevailing circumstances and not exercise that discretion in an arbitrary fashion.

4. Where one of several defendants who is alleged to be jointly and severally

liable defaults, judgment should not be entered against him until the matter has been adjudicated with respect to all defendants or all defendants have defaulted.

5. The record in an appeal from entry of default judgment is examined, and, as more fully set forth in the opinion, it is held: The district court abused its discretion under the total circumstances as disclosed by the record.

John E. Rees, of Kassebaum & Rees, Wichita, argued the cause and was on the brief for appellant.

Richard L. Honeyman, of Kahrs, Nelson, Fanning, Hite & Kellogg, Wichita, argued the cause and was on the brief for appellees Reliance Ins. Cos. and Maryland Casualty Co.

H. E. Jones, of Hershberger, Patterson & Jones, Wichita, argued the cause, and Stephen J. Jones, Wichita, was with him on the brief for appellee Huebsch Originators of Milwaukee, Wisconsin.

FATZER, Chief Justice:

This appeal is from an order of the district court denying the appellant's motion to set aside a default judgment.

The appellees, Reliance Insurance Companies and Maryland Casualty Company, were plaintiffs in an action against appellant Thompson-Hayward Chemical Company and appellee Huebsch Originators of Milwaukee, Wisconsin. For purposes of clarity Reliance Insurance Companies and Maryland Casualty Company are hereafter referred to as appellees; Thompson-Hayward Chemical Company as Thompson-Hayward or appellant, and Huebsch Originators of Milwaukee, Wisconsin as Huebsch.

This action stems from a fire at Royal Cleaners, Inc., Wichita, Kansas. On March 24, 1969, some clothing in one of six Huebsch's clothes dryers owned and operated by Royal caught fire and spread to adjacent areas causing damage to Royal's building, equipment and customers' clothing. The appellant is the local sales representative of Huebsch. The appellees, as insurers of Royal's building and its contents, made payment for damages caused by the fire. On January 14, 1971, the appellees filed an action asserting subrogation claims totaling $35,681.85 against Thompson-Hayward and Huebsch. In their petition, appellees alleged Thompson-Hayward and Huebsch were liable by reason of negligence, breach of express and implied warranties, and breach of contract.

On January 15, 1971, Thompson-Hayward was served with copies of the petition and summons at its business office in Wichita. The answer date for Thompson-Hayward was February 4, 1971. Service of process on Huebsch was directed to the Secretary of State who served Huebsch on January 19, 1971, pursuant to K.S.A. 17-509 (repealed L.1972, Ch. 52, § 153, now K.S.A.1973 Supp. 17-7307). Answer date for Huebsch was March 1, 1971.

Thompson-Hayward did not file an answer within the prescribed time. On the morning of February 8, 1971, Mr. Russell E. Swisher, the claims manager in Wichita for Thompson-Hayward's insurance carrier, Hartford Insurance group, was informed by telephone from Hartford's New York office of the pending lawsuit and that the answer date was February 4, 1971. Mr. Swisher immediately contacted appellees' attorney and inquired if he would consent to granting Thompson-Hayward an extension of time within which to file an answer. Counsel declined the request. Thereafter, Mr. Swisher asked Mr. James R. Barr, a member of the Wichita bar, to protect the interests of Thompson-Hayward. On the same date, February 8, appellees' attorney prepared a motion for default judgment and mailed a copy to Thompson-Hayward's Wichita office. At the same time, Thompson-Hayward was given notice that the motion would be heard on February 19, 1971. Appellees' motion was filed in the district court on February 9, 1971.

On February 16, 1971, Mr. Barr filed a motion on behalf of Thompson-Hayward requesting leave to file an answer out of time. Deleting the introductory phrase, that motion alleged:

'. . . (T)hat defendant is a large corporation with various levels of responsibility, and that the original time for filing answer was consumed in transmitting summons through defendant's normal chain of command, and for that reason the matter was not placed in local counsels' hands in time to file said answer, all of which his defendant maintains is excusable neglect.'

The following day, February 17, Thompson-Hayward's retained counsel filed an answer which denied appellees' allegations, and alleged that any action based upon breach of warranty or contract was barred by the statute of limitations, K.S.A. 60-512.

At the hearing on February 19, the district court granted default judgment against Thompson-Hayward, finding the appellant's motion failed to show a sufficient reason or excuse for its failure to timely file an answer. No record was made of the hearing and no journal entry was prepared. In conjunction with the hearing, Thompson-Hayward filed a motion for production of all non-privileged documents in appellees' possession containing discoverable information. The record indicates no action was taken on this motion until it was overruled on May 28, 1971.

On March 1, 1971, Thompson-Hayward filed a motion to set aside the default judgment pursuant to K.S.A.1970 Supp. 60-255(b) and K.S.A. 60-260(b). Thompson-Hayward alleged its failure to answer timely was occasioned by reason of mistake, inadvertence, surprise or excusable neglect; that at the hearing granting appellees a default judgment the court had considered only the petition and motion before it and no evidence was presented; that at the time the default judgment was entered against the appellant, the time to answer had not yet expired for Huebsch, a co-defendant who was alleged to be jointly and severally liable, and that appellees had not communicated to Thompson-Hayward any claim of liability prior to service of process.

At the time Thompson-Hayward filed its motion to set aside the default judgment, it also filed a motion to alter or amend judgment pursuant to K.S.A.1970 Supp. 60-259. In support of its motion to alter or amend, Thompson-Hayward alleged no evidence was offered or presented to the court at the hearing on February 19; that no findings of fact were made by the court; that appellees lack prima facie evidence as to liability on the part of Thompson-Hayward, and that appellees' claim of breach of warranty was barred by the statute of limitations which was known or should have been known by them. Appellant requested oral argument and leave to present evidence in support of both motions.

Additionally, and on the same date, March 1, Thompson-Hayward filed a cross-claim for indemnification against Huebsch. The grounds alleged were negligence, breach of implied warranty, and breach of contract. Thompson-Hayward then commenced discovery. Appellees permitted Thompson-Hayward to examine the dryer unit which had caused the fire, and furnished Xerox copies of photographs; a copy of the Wichita Fire Department's investigation report, and copies of subrogation documents. The appellant was also advised that Haag Engineering Company of Dallas, Texas, had investigated the fire loss for appellees and submitted a written report. The appellant was informed it was the opinion of Haag Engineering Company that when the dryer was installed at Royal Cleaners, Inc., someone had not taken off a wire that had been placed through a pin for shipping purposes and that wire prohibited a safety plate from falling and confining the fire to the dryer.

On March 4, 1971, Huebsch filed an answer to plaintiffs' petition and a cross-claim against Thompson-Hayward. Mention should be made that on February 24, Huebsch obtained a ten-day extension- from March 1, to March 11-in which to file its answer, hence its answer was timely filed. The answer denied the allegation of appellees' petition, and further alleged:

'. . . (T)hat the applicable statutes of limitation have expired, and that therefore plaintiffs' Petition fails to state a claim upon which relief can be granted.

'. . . (T)hat plaintiff's insured Jack B. Stephens was himself guilty of the acts of negligence in the way of omission and commission, and that by reason thereof plaintiffs are not entitled to recover from this defendant.

'. . . (T)hat if the plaintiffs sustained any damage it was by reason of the negligence of third persons, including this defendant's codefendant over whom they had no control, and that therefore plaintiffs are not entitled to recover from this defendant.

'. . . (T)his defendant by answering herein does not waive, but specifically asserts the defenses of lack of jurisdiction of the person of this defendant, insufficiency of process, insufficiency of the service of process, and failure of the plaintiffs to state a claim upon which relief can be granted.'

Huebsch's cross-claim against Thompson-Hayward asserted each allegation contained in its answer against the appellees, and further asserted that Thompson-Hayward was negligence in connection with the sale and installation of the dryer and that by reason thereof Huebsch was entitled to indemnity from Thompson-Hayward for any sums it may be required to pay the appellees.

On March 5, 1971, Thompson-Hayward filed a demand for jury trial pursuant to K.S.A. 60-238. On April 8, the administrative judge...