Sprung v. Negwer Materials, Inc.

• Citation: 775 S.W.2d 97
• Decision Date: 01 August 1989
• Docket Number: No. 71368,71368
• Parties: Melvin James SPRUNG, Jr., Respondent, v. NEGWER MATERIALS, INC., Appellant.
• Court: United States State Supreme Court of Missouri

Page 97

775 S.W.2d 97

Melvin James SPRUNG, Jr., Respondent, v. NEGWER MATERIALS, INC., Appellant.

No. 71368.

Supreme Court of Missouri,

En Banc.

Aug. 1, 1989.

Dissenting Opinion of Justice Blackmar's Opinion Corrected

Sept. 8, 1989.

Rehearing Denied Sept. 8, 1989.

Albert E. Schoenbeck, Brent W. Baldwin, St. Louis, for appellant.

Charles L. Merz, St. Louis, for respondent.

BILLINGS, Judge.

This is Sprung II--a petition in equity to set aside a default judgment after remand by this Court in Sprung I. Following an evidentiary hearing the trial court denied relief. The Missouri Court of Appeals, Eastern District, affirmed the order of the lower court but ordered the case transferred to this Court. Affirmed.

The principal opinion of Judge Gary M. Gaertner for the court of appeals, with minor modification, and without quotation marks, is adopted as the opinion of this Court, and is as follows:

Appellant, Negwer Materials, Inc., appeals the order of the trial court overruling appellant's petition in equity to set aside a default judgment for $1,500,000.00 in favor of respondent, Melvin James Sprung, Jr., and against appellant. On appeal appellant raises four issues: (1) The trial court incorrectly declared and applied the law in determining that appellant did not have good reason or excuse for the default ¹; (2) The failure of respondent's attorney to advise appellant's attorney that a default judgment had been entered requires the judgment be set aside; (3) Imputing the conduct of appellant's attorney and insurer to appellant violates due process of law; and (4) Respondent's petition fails to state a cause of action. Finding appellant's contentions to be without merit, the judgment is affirmed.

The evidence reveals respondent filed a petition on December 27, 1984, for damages sustained when a cart, which was rented from the appellant, tipped over and threw drywall on the respondent; appellant received personal service on January 11, 1985. Appellant proceeded to deliver the petition to its insurance company which then delivered it to a law firm. On January 31, 1985, an attorney in the firm dictated an entry of appearance and a request for extension of time to plead. Appellant asserts that, upon the documents being signed by the lawyer, a secretary mailed them to the insurance company. Neither the clerk of the circuit court nor respondent's attorney received appellant's entry of appearance and request for an extension of time to plead.

The trial court entered an interlocutory judgment of default against appellant on February 28, 1985. On March 11, 1985, the trial court entered a final judgment by default in the amount of $1,500,000. Further facts will be adduced concerning the circumstances occasioning the default judgment as they become warranted by our discussion of the issues.

On April 22, 1985, respondent's attorney informed appellant's attorney that a final judgment had been entered. Appellant filed on May 3, 1985, two motions to set aside the default judgment. The trial court overruled appellant's motion to set aside the judgment for irregularity and sustained appellant's motion to set aside the default judgment on equitable grounds pursuant to Rule 75.01. The court of appeals reversed the trial court's order setting aside the judgment on equitable grounds and affirmed the order denying the motion to set aside the judgment for irregularity.

This Court in Sprung I decided the motion to set aside the judgment for irregularity was properly denied. Further, that the cause should be remanded to the trial court with directions to treat appellant's motion to set aside the final default judgment as an independent suit in equity. The Court ruled the trial court lacked jurisdiction to set aside the judgment through the exercise of its discretionary powers conferred by Rule 75.01, where the thirty days provided by Rule 75.01 had expired prior to the filing of appellant's motion; instead, an independent petition in equity was required. Sprung v. Negwer Materials Inc., 727 S.W.2d 883, 886 (Mo. banc 1987). Upon remand, and following the evidentiary hearing, the trial court entered an order in which it overruled appellant's petition in equity to set aside the judgment. It is from this order that appellant appeals.

At the outset, the Court recognizes the appropriate standard of review. The trial court's decree is to be sustained unless there is no substantial evidence to support it, it is against the weight of the evidence, or it erroneously declares or applies the law. Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). Further, as noted in Sprung I, that, as appellant's motion is to be accorded the status of a petition, "[Appellant] is required not only to plead its cause, but also to prove it." Sprung, 727 S.W.2d at 889.

In its first point, appellant claims the trial court erred in refusing to set aside the default judgment on equitable grounds. In order for one to prevail in setting aside a default judgment on equitable grounds, he must show a meritorious defense, good reason or excuse for the default and that no injustice will accrue to the party who obtained the default judgment as a result of setting aside the judgment. Sprung, 727 S.W.2d at 889.

Appellant's principal argument is that the trial court used the wrong standard for determining whether appellant had good reason or excuse for the default. Appellant maintains that a party who seeks to set aside a default judgment need only show "reasonable diligence or excuse for the default" citing Whitledge v. Anderson Air Activities, Inc., 276 S.W.2d 114, 116 (Mo.1955). Appellant further notes amended Rule 74.05(c), effective January 1, 1988, which states that "good cause includes a mistake or conduct that is not intentionally or recklessly designed to impede the judicial process." The Court in Sprung I unequivocally enunciated the criteria, at least in the context of an independent action in equity, for determining "good reason or excuse". Adopting the language contained in Hamm v. Hamm, 437 S.W.2d 449, 453 (Mo.App.1969), the court declared that "good reason or excuse" exists when the default occurs "by reason of accident, mistake, inadvertence, mischance or unavoidable circumstances unmixed with neglect or inattention...." (emphasis in original). See also Patterson v. Fitzgibbon Discount Corporation, 339 S.W.2d 301, 306 (Mo.App.1960). The opinion in Sprung I specifically defined the issue for the trial court's determination by stating:

[Appellant] claims that its failure to answer resulted from mistake, inadvertence, mischance, or accident. [Respondent] does not concede that [appellant's] failure to answer proceeded from 'accident, mistake, inadvertence, or unavoidable circumstances unmixed with neglect or inattention.' ... whether [appellant] had a good cause or excuse for its inattention is a factual matter not fully addressed in the proceedings before the trial court. Further proceedings are required.

Sprung, 727 S.W.2d at 890 (emphasis in original).

Thus, the dispositive issue is whether or not there was sufficient evidence for the trial court to conclude that appellant's conduct, be it considered accident, mistake, inadvertence, or mischance, was not unmixed with neglect or inattention.

Appellant admits that its entry of appearance and proposal for an extension of time to plead were never received by respondent's attorney or filed with the trial court. Both the original and the copy of the documents were apparently sent to appellant's insurance company. Appellant's law firm utilized an internal system to alert an attorney if an order mailed to the court was not granted. A receptionist reviewed the Daily Record each day to determine whether requests by the law firm for extensions of time had been granted; if the Daily Record did not reflect that a request had been granted within a reasonable time, the mechanism called for the attorney to be notified. However, although no entry reflecting the granting of an extension of time ever appeared in the Daily Record, no inquiry was made by the law firm to determine the status of the case, and no further action was taken until approximately forty-nine days after the law firm had prepared the proposed order. In addition to the preceding safeguard, the law firm also had a system whereby a printout of all court actions relating to its cases was placed daily on the desk of each attorney. The judgment in the present case was reflected on the March 15, 1985, printout.

Conduct on the part of the appellant's insurance company also contributed to the default. Both appellant's attorney and his secretary testified that copies of court documents requesting time to plead and entries of appearance were not routinely sent to the insurance company. The claims manager at the insurance company, who was charged with monitoring the file in the present case, testified that she had not seen a yellow original court memorandum requesting time to plead before she received the one in the present case. She acknowledged that it would have been apparent from a cursory examination of the documents she received from the law firm that at least some of them were intended for the court. Nonetheless, the claims manager placed the documents in the insurance company's file and advised no one. These facts indicate that the default judgment was the result of possible neglect and inattention by appellant's law firm and in particular the insurance company.

Much authority supports the denial of relief when a default judgment is the result of mishandling of documents. In Jones v. Chrysler Corp., 731 S.W.2d 422 (Mo.App.1987), which was decided after Sprung I, the court states, "[M]isrouting of papers within an organization does not constitute good cause for default nor does it show excusable neglect." Id. at 427. In Jones, a secretary for the defendant inadvertently delayed sending a letter, timely dictated, to the defendant's law firm until...