Sun Mountain Sports, Inc. v. Gore

• Decision Date: 09 March 2004
• Docket Number: No. 02-640.,02-640.
• Citation: 85 P.3d 1286,320 Mont. 196,2004 MT 56
• Parties: SUN MOUNTAIN SPORTS, INC., Plaintiff and Respondent, v. Paula L. GORE, Defendant and Appellant.
• Court: Montana Supreme Court

85 P.3d 1286

2004 MT 56

320 Mont. 196

SUN MOUNTAIN SPORTS, INC., Plaintiff and Respondent, v. Paula L. GORE, Defendant and Appellant.

No. 02-640.

Supreme Court of Montana.

Submitted on Briefs January 30, 2003.

Decided March 9, 2004.

For Appellant: Nikolaos G. Geranios, Dye & Moe, P.L.L.P., Missoula, Montana.

For Respondent: Cory R. Laird, Boone Karlberg, P.C., Missoula, Montana.

Justice JIM RICE delivered the Opinion of the Court.

¶ 1 Paula L. Gore (Gore) appeals the denial of her motion to set aside a default and default judgment entered against her, and in favor of Sun Mountain Sports, Inc. (Sun Mountain), by the Fourth Judicial District Court, Missoula County. We conclude that her motion was improperly denied and reverse.

¶ 2 The sole issue presented is whether the District Court abused its discretion when it denied Gore's motion to set aside the default and default judgment.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 3 The crux of this dispute is Sun Mountain's claim that Gore is liable for the cost of merchandise which Sun Mountain, a Montana corporation, sold and delivered to Golf Emporium Superstore, Inc., in San Antonio, Texas. The basis of Sun Mountain's claim is a Personal Guaranty executed by Gore on November 15, 1996, as Secretary Treasurer for Ocean Club, Inc., d/b/a Golf Emporium. Gore, a resident of Texas, contends the Personal Guaranty which she executed was for Ocean Club, Inc., only, a Texas corporation which ceased doing business in 1997, and that she did not sign a Personal Guaranty on behalf of Golf Emporium Superstore, Inc., and is not responsible for the debts of that entity.

¶ 4 On March 18, 2002, Sun Mountain filed an action against Gore in the Fourth Judicial District Court to recover by way of the Personal Guaranty she had executed, and caused a summons to be issued which was personally served upon Gore in Bexar County, Texas, on March 22, 2002. Gore retained Texas counsel to initiate a Texas action against Sun Mountain regarding the claimed debt, but she answered the Montana action pro se. On Sun Mountain's motion, the Bexar County Court entered an order abating Gore's Texas action pending disposition of the Montana proceeding.

¶ 5 Upon being served with the Montana summons and complaint, Gore, on or about April 8, 2002, submitted via certified mail to the Missoula County Clerk of Court, an answer and special appearance which denied the allegations of indebtedness to Sun Mountain and asserted that the District Court lacked personal jurisdiction over her as defendant. Gore also served via certified mail a copy of the answer upon Sun Mountain's counsel in Missoula. The clerk of court may have initially filed Gore's answer but later returned it to Gore with a note stating that Gore failed to include the required filing fee. In an affidavit, Gore stated she received the returned answer on April 17, 2002.

¶ 6 On April 12, 2002, after Gore's appearance deadline expired, Sun Mountain, without notice to Gore, applied for entry of default pursuant to Rule 55(a), M.R.Civ.P. On April 16, 2002, the District Court entered default against Gore. The following day, April 17, 2002, Sun Mountain requested a hearing and entry of default judgment against Gore. Also on that day, Gore received her returned answer and called the clerk of court to inquire why her documents had been returned. She then learned that the default had been entered against her the previous day. On April 25, 2002, the District Court held the hearing requested by Sun Mountain and entered default judgment against Gore in the amount of $21,628.28, which consisted of principal, accrued interest, attorney fees, costs, and expenses.

¶ 7 Upon learning of the default, Gore immediately hired Montana counsel who, on June 13, 2002, within the sixty-day period required by Rule 60(b), M.R.Civ.P., and pursuant to Rules 55(c), 60(b), and 12(b), M.R.Civ.P., moved to set aside the default, vacate the default judgment, and dismiss the case for lack of personal jurisdiction.

¶ 8 The District Court failed to rule on the motion within sixty days, and it was deemed denied by operation of Rule 60(c), M.R.Civ.P. On August 22, 2002, the District Court held a hearing on Gore's motions to set aside the default, vacate the default judgment, and dismiss the case. At the hearing, Gore's counsel stated he believed the District Court had lost jurisdiction on the matter pursuant to Rule 60(c), and the court agreed. The District Court stated that, upon appeal, the question before this Court would be whether or not the default is valid.

¶ 9 On August 30, 2002, Gore filed a notice of appeal with this Court, appealing from the deemed denial of her motion to set aside the default and vacate the default judgment.

STANDARD OF REVIEW

¶ 10 In reviewing a default judgment, we are guided by the principle that every litigated case should be decided on its merits; judgments by default are not favored. In re Marriage of Whiting (1993), 259 Mont. 180, 186, 854 P.2d 343, 347. When appeal is from a denial of a motion to set aside a default judgment, our standard of review is that only a slight abuse of discretion need be shown to warrant reversal. Lords v. Newman (1984), 212 Mont. 359, 364, 688 P.2d 290, 293; Blume v. Metropolitan Life Ins. Co. (1990), 242 Mont. 465, 467, 791 P.2d 784, 786. The party seeking to set aside a default judgment has the burden of proof. In re Marriage of Winckler, 2000 MT 116, ¶ 10, 299 Mont. 428, ¶ 10, 2 P.3d 229, ¶ 10.

DISCUSSION

¶ 11 Did the District Court abuse its discretion when it denied Gore's motion to set aside the default and default judgment?

¶ 12 Pursuant to Rule 55(c), M.R.Civ. P., a default may be set aside for "good cause":

For good cause shown the court may set aside an entry of default and, if a judgment by default has been entered, may likewise set it aside in accordance with Rule 60(b).

In Blume, this Court clarified the criteria which must be satisfied by a defaulting party to establish good cause, and we have restated the criteria as follows:

(1) the defaulting party proceeded with diligence; (2) the defaulting party's neglect was excusable; (3) the defaulting party has a meritorious defense to the claim; and (4) the judgment, if permitted to stand, will affect the defaulting party injuriously.

Winckler, ¶ 15 (citing Blume); see also In re Marriage of McDonald (1993), 261 Mont. 466, 468, 863 P.2d 401, 402.

¶ 13 Rule 60(b), M.R.Civ.P., provides the following bases for setting aside a judgment:

On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; ... or (6) any other reason justifying relief from the operation of the judgment.

¶ 14 The moving party must first satisfy the Rule 55(c), M.R.Civ.P., criteria for good cause, and then satisfy the more stringent Rule 60(b), M.R.Civ.P., criteria: "... the `good cause standard under Rule 55(c), M.R.Civ.P., should be applied more flexibly and leniently than the excusable neglect standard under Rule 60(b), M.R.Civ.P.'" Winckler, ¶ 17 (citing Blume, 242 Mont. at 467, 791 P.2d at 786; quoting Cribb v. Matlock Communications, Inc. (1989) 236 Mont. 27, 30, 768 P.2d 337, 339).

¶ 15 Gore contends she has met her burden for setting aside the default and default judgment pursuant to Rules 55(c) and 60(b), M.R.Civ.P. Gore argues (a) that she proceeded with diligence in hiring Montana counsel to file her Rule 60(b), M.R.Civ.P., motion within the sixty-day period as required by the rule; (b) that her neglect was excusable based upon her good faith compliance with the summons, which did not include instructions to remit a $65.00 filing fee; (c) that she has a meritorious defense to Sun Mountain's claim, specifically, that she did not sign the Personal Guaranty for Golf Emporium Superstore, Inc., that the debts made the basis of Sun Mountain's claim were incurred long after Ocean Club, Inc., stopped doing business, and that Sun Mountain has acknowledged in writing that the debts at issue are owed by Golf Emporium Superstore, Inc.; and (d) that the judgment, if permitted to stand, will affect her injuriously since, as she asserts, she does not owe the debt as alleged.

¶ 16 In response, Sun Mountain asserts Gore's argument that the summons provided no notice of the filing fee is without merit. Sun Mountain states Gore had an obligation to educate herself and abide by the various rules of Montana courts. Further, Sun Mountain argues it is error for the court to exonerate Gore from failure to appear because of her pro se status. Sun Mountain analogizes that it had to hire Texas counsel to properly appear and defend in the case filed by Gore in that state, but that Gore initially chose not to hire Montana counsel which would have assured a proper appearance and answer in this action. Finally, Sun Mountain argues that Gore's challenges to the validity of the Personal Guaranty are also without merit. Sun Mountain states that, according to the terms of the Personal Guaranty, in order to terminate her contractual obligations, Gore would have had to have provided prior written notification to Sun Mountain, which Gore did not do.

¶ 17 Upon receipt of the complaint and summons in Texas, Gore first attempted to file a timely answer to the action. Then, upon learning of the entry of default against her, she immediately hired Montana counsel, who filed a timely motion to vacate the default and the default judgment pursuant to Rules 55(c) and 60(b), M.R.Civ.P., and to dismiss the case for lack of personal jurisdiction pursuant to Rule 12(b), M.R.Civ.P. The matter was fully briefed and set for hearing on August 22, 2002. However, shortly before the hearing, Gore discovered, and the District Court concurred, that the matter had been deemed denied by operation of Rule 60(c), M.R.Civ.P. We conclude that Gore acted with...