Williams Services v. Sherman, 17537

• Decision Date: 13 January 1992
• Docket Number: No. 17537,17537
• Citation: 492 N.W.2d 122
• Court: South Dakota Supreme Court
• Parties: WILLIAMS SERVICES, Plaintiff and Appellee, v. Rory SHERMAN, d/b/a United Standard & United Standard Distributors of Wyoming, Defendant and Appellant. . Considered on Briefs

Page 122

492 N.W.2d 122

WILLIAMS SERVICES, Plaintiff and Appellee, v. Rory SHERMAN, d/b/a United Standard & United Standard

Distributors of Wyoming, Defendant and Appellant.

No. 17537.

Supreme Court of South Dakota.

Considered on Briefs Jan. 13, 1992.

Decided Nov. 10, 1992.

Mark V. Meierhenry of Danforth, Meierhenry & Everist, Sioux Falls, for plaintiff and appellee.

Richard A. Johnson of Strange, Farrell, Johnson & Casey, Sioux Falls, for defendant and appellant.

McKEEVER, Circuit Judge.

Rory Sherman (Sherman) appeals from an order by the trial court amending a judgment more than one year after it was entered. We affirm.

STATEMENT OF FACTS

Williams Service (Williams), a partnership, entered into a contract with United Standard Distributors of Wyoming (USD of Wyoming), a distributorship of water conditioning equipment, on February 22, 1985. The agreement provided that Williams would receive $165 for each water conditioning unit it installed and serviced for USD of Wyoming. On August 5, 1987, Williams commenced a debt collection action against USD of Wyoming and Sherman, the president and sole shareholder, for unpaid services performed according to contract terms in the amount of $5,505.

At trial, Sherman's testimony established that USD of Wyoming was an active business entity which held regular corporate meetings, maintained corporate records and observed corporate formalities. ¹ Based upon this testimony the trial court declined to pierce the corporate veil and hold Sherman personally liable for the debt. Judgment was entered for Williams and against USD of Wyoming on September 21, 1988, for $5,505 plus costs and interest.

On December 27, 1988, Williams filed a petition to enforce the judgment against USD of Wyoming in Douglas County, Nebraska. It also filed a motion to require an undertaking by USD of Wyoming, as well as a motion for order restraining USD of Wyoming and Sherman from disposing of any assets. The trial court granted these motions. A subpoena was then issued requiring Sherman to appear at a debtor's examination in his capacity as USD of Wyoming's president. He failed to appear at the scheduled hearing.

On January 30, 1989, Williams served but did not file a motion to amend judgment upon Sherman and his counsel. This motion sought to hold Sherman personally liable for the judgment because he allegedly transferred USD of Wyoming's assets and property to United Standard of Nebraska (USD of Nebraska), a distributor corporation wholly owned by Sherman and incorporated in Nebraska, for the sole purpose of defeating the judgment. The motion was served again but not filed on February 16, 1989. Finally, on February 26, 1990, approximately seventeen months after the original judgment was entered, Williams filed its motions.

The trial court ordered Sherman to produce USD of Wyoming's financial records on April 6, 1990. Williams renewed its motion to amend judgment on June 25, 1990. The trial court issued another order on August 24, 1990, requiring USD of Wyoming and Sherman to produce additional financial information.

On November 6, 1990, Williams conducted a debtor's examination of Sherman in his capacity as president of USD of Wyoming. Sherman's testimony at the 1990 debtor's examination revealed that USD of Wyoming transferred all of its assets to USD of Nebraska by April 17, 1987. ² His testimony also established that USD of Wyoming failed to generate any income since August 21, 1988, one month before judgment was entered against USD of Wyoming.

At the hearing on Williams' motion to amend judgment, the court reviewed the debtor's examination, heard Sherman's testimony under oath and listened to counsels' oral arguments. The trial court amended the judgment by memorandum letter opinion on March 8, 1991. The court concluded that Sherman "has been playing loose with the court" based upon the difficulties in obtaining USD of Wyoming's financial information and Sherman's testimony at the debtor's exam. The judgment was amended to hold Sherman individually liable to Williams for the debt. It is from this judgment Sherman appeals.

DECISION

ISSUE

WHETHER THE TRIAL COURT ERRED IN AMENDING THE JUDGMENT TO HOLD SHERMAN PERSONALLY LIABLE MORE THAN ONE YEAR AFTER THE ORIGINAL JUDGMENT WAS ENTERED?

Analysis

Sherman contends that Williams' motion to amend the judgment is based upon fraud, or, in the alternative, fraud upon the court and must be treated as a motion to vacate under SDCL 15-6-60(b) because Williams neither filed a motion for new trial nor appealed the trial court's judgment. Sherman further contends that, as a motion to vacate, Williams' motion must fail because it was not timely filed within the one year time limit requirement of SDCL 15-6-60(b)(3), and, in the alternative, Williams failed to establish that Sherman committed fraud upon the court, upon which a reasonable time limit for making the motion is allowed.

Williams contends that the motion was served within one year of the judgment's entry thus satisfying both the one year and the reasonable time requirements of SDCL 15-6-60(b). In support of its motion to vacate, Williams contends that Sherman committed fraud upon the court, and the court properly exercised its discretion to amend the judgment and hold Sherman personally liable for the debt of his 100 percent owned corporation, USD of Wyoming.

In its motion to amend judgment, Williams asked the court to modify the judgment to hold Sherman personally liable for the debt. Sherman's testimony at trial established that USD of Wyoming held regular corporate meetings and maintained corporate records, that Sherman was 100 percent owner of the shares in USD of Wyoming, and that USD of Wyoming was an active corporate entity. However, difficulties encountered by counsel in obtaining information about USD of Wyoming's financial affairs and the information elicited from Sherman at the debtor's examination show that USD of Wyoming is no longer in existence. In fact, the bulk of USD of Wyoming's assets were transferred into a new Nebraska corporation (USD of Nebraska), owned 100 percent by Sherman, on April 26, 1988. Based upon this information, the trial court found that Sherman "has been playing loose with the Court."

The trial court, in response to the motion, vacated that portion of its original order finding no personal liability for Sherman to Williams. Vacation of judgments is governed by SDCL 15-6-60(b). The statute provides:

On motion and upon such terms as are just, the court may relieve a party or his legal representative from a final judgment, order, or proceeding for the following reasons:

* * * * * *

(3) Fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party;

* * * * * *

(6) Any other reason justifying relief from the operation of the judgment. ³

A motion for relief based upon SDCL 15-6-60(b) is addressed to the sound discretion of the trial court and will not be disturbed on appeal except for abuse. Gustafson v. Gustafson, 453 N.W.2d 852 (S.D.1990). The trial court's discretion is to be exercised liberally in accord with legal and equitable principles in order to promote the ends of justice. City of Lemmon v. U.S. Fidelity & Guaranty, 293 N.W.2d 433 (S.D.1980); Kuehn v. First Nat. Bank in Sioux Falls, 90 S.D. 96, 238 N.W.2d 490 (1976).

The purpose of SDCL 15-6-60(b) is to "preserve the delicate balance between the sanctity of final judgments and the incessant command of a court's conscience that justice be done in light of all the facts." Gold Pan Partners, Inc. v. Madsen, 469 N.W.2d 387, 391 (S.D.1991); Peterson v. LaCroix, 420 N.W.2d 18, 19 (S.D.1988) (citing Rosebud Sioux Tribe v. A. & P. Steel, Inc., 733 F.2d 509, 515 (8th Cir.), cert. denied, 469 U.S. 1072, 105 S.Ct. 565, 83 L.Ed.2d 506 (1984), on remand, 874 F.2d 550 (8th Cir.1989)). This statute provides for extraordinary relief upon a showing of exceptional circumstances. Clarke v. Clarke, 423 N.W.2d 818 (S.D.1988); Haggar v. Olfert, 387 N.W.2d 45 (S.D.1986).

Besides requiring exceptional circumstances, SDCL 15-6-60(b) has a built-in time limitation. Any motion for relief pursuant to subsections (1), (2) or (3) must be made within one year after the judgment was entered. SDCL 15-6-60(b). Therefore, a motion which alleges fraud must be made "not more than one year after the judgment, order or proceeding was entered or taken," while a motion alleging fraud upon the court must be made within a "reasonable time." SDCL 15-6-60(b). Consequently, we will first examine Williams' argument that Sherman's action constituted fraud upon the court.

I. Fraud upon the court

Fraud upon the court is that type of fraud that "defile[s] the court itself, or is a fraud perpetrated by officers of the court so that the judicial machinery can not perform in the usual manner its impartial task...." Gifford v. Bowling, 86 S.D. 615, 200 N.W.2d 379, 384 (1972) (quoting 7 Moore's Federal Practice p 60.33). See also Matter of Estate of Althen, 429 N.W.2d 745 (S.D.1988). In order to set aside a judgment because of fraud upon the court under Rule 60(b),

it is necessary to show an unconscionable plan or scheme which is designed to improperly influence the court in its decision. Courts have found fraud upon the court only where there has been the most egregious conduct involving a corruption of the judicial process itself.

Gifford, 200 N.W.2d at 384. Examples of such conduct include "bribery of judges, employment of counsel to 'influence' the court, bribery of the judiciary, and the involvement of an attorney (an officer of the court) in the perpetration of fraud." Id. None of these are alleged in this case.

Williams contends that Sherman's failure to disclose USD of Wyoming's true financial and corporate status amounts to fraud upon the court. The fraud Williams alleges is not fraud in the procurement of a judgment (See Wooster v. Wooster, 399 N.W.2d 330, 334 (S.D...