FSST Financial Svcs. v. Native Payment Svcs. ( 2020 )

NOT DESIGNATED FOR PUBLICATION
No. 119,624
IN THE COURT OF APPEALS OF THE STATE OF KANSAS
FSST FINANCIAL SERVICES, LLC,
Appellee,
v.
NATIVE PAYMENT SERVICES, LLC,
FOXBARRY FINANCIAL SERVICES, LLC, and
BARRY J. BRAUTMAN,
Appellants.
MEMORANDUM OPINION
Appeal from Johnson District Court; DAVID W. HAUBER, judge. Opinion filed March 20, 2020.
Affirmed.
Donald M. McLean, of Kansas City, for appellants.
Brian Nye and Paul Croker, of Armstrong Teasdale LLP, of Kansas City, Missouri, for appellee.
Before BUSER, P.J., PIERRON and BRUNS, JJ.
BUSER, J.: FSST Financial Services, LLC (FSST) filed a lawsuit against Native
Payment Services, LLC (Native), Foxbarry Financial Services, LLC (Foxbarry), and
Barry J. Brautman (collectively Defendants). In its petition, FSST brought several claims
against Defendants and argued they improperly withheld $404,462.11 that belonged to
FSST. After Defendants failed to respond to the petition, the district court granted default
judgments against them. More than eight months after the district court granted default
judgment against the last defendant, Defendants moved to set aside the judgments. The
district court denied the motion.
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Defendants appeal the district court's order denying their motion to set aside the
default judgments. On appeal, Brautman argues the court abused its discretion by denying
his request to set aside the default judgment under K.S.A. 2018 Supp. 60-260(b)(1)
because he proved excusable neglect. Next, Defendants collectively contend the district
court abused its discretion when it refused to set aside the judgments under K.S.A. 2018
Supp. 60-260(b)(6) because the court relied on incorrect legal standards.
Upon our review, we find no reversible error and affirm the district court's denial
of Defendants' motion to set aside the default judgments.
FACTUAL AND PROCEDURAL BACKGROUND
On August 15, 2016, FSST filed an eight-count petition against Defendants. The
petition alleged breach of contract, negligent/fraudulent misrepresentation, breach of
fiduciary duty, unjust enrichment, civil theft/fraudulent conversion/conversion,
conspiracy, and a request for an accounting. The petition named Native, Foxbarry, and
Brautman individually as defendants in the action.
In its petition, FSST alleged that it entered into a consulting agreement with
Foxbarry—a company directed and controlled by Brautman. Through this consulting
agreement, Brautman and Foxbarry brokered a deal between FSST and Native for Native
to process FSST's electronic financial transactions. Brautman is named as the president
and managing member of Native. FSST and Native entered into a contract requiring
Native to provide FSST with payment services to process the electronic credits and debits
of FSST's customers.
The petition asserted that Native processed credit transactions and held funds on
behalf of FSST, but failed to pay FSST. As a result, Native breached its contract and
improperly withheld $404,462.11 from FSST. FSST terminated the financial processing
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contract with Native and demanded immediate return of the withheld funds. Native,
however, refused to pay FSST the $404,462.11. In its petition, FSST pled that Brautman
was the alter ego of Native.
In addition to Native's wrongdoings, FSST asserted that Brautman and Foxbarry
breached the consulting agreement. According to FSST, Brautman and Foxbarry knew or
should have known that Native should not be trusted with providing financial processing
services, but failed to inform FSST of that fact. FSST informed Brautman and Foxbarry
of their collective breach of the consulting agreement and demanded payment of the
$404,462.11 withheld by Native. Like Native, Brautman and Foxbarry failed to pay the
$404,462.11 owed to FSST.
FSST served all three defendants. Brautman was served in October 2016. Native
and Foxbarry were served in January 2017.
On October 31, 2016, Brautman filed pro se a clerk's order for additional time to
plead to the petition. This order provided:
"Now, on this 31st day of October, 2016 defendant(s) Barry Brautman (write in name)
is/are hereby granted (14) additional days within which to answer or file other pleading to
the plaintiff's petition."
However, Brautman failed to answer or file any responsive pleading by the extended
deadline of November 14, 2016.
On December 6, 2016, FSST moved for default judgment against Brautman. In
this motion, FSST requested a damages award of $404,462.11 plus interest, costs, and
attorney fees. FSST served a copy of this motion and a notice of a hearing on Brautman.
But Brautman failed to respond to FSST's motion for default judgment or appear at the
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hearing. At the conclusion of the hearing, the district court granted FSST's motion for
default judgment against Brautman.
On January 10, 2017, the district court filed a journal entry of default judgment
awarding FSST damages of $404,462.11 plus interest, costs, and $5,000 in attorney fees.
About two months after the district court entered default judgment against Brautman, he
filed for bankruptcy. However, Brautman's bankruptcy action was later dismissed.
Like Brautman, both Native and Foxbarry failed to file responsive pleadings after
they were served with FSST's petition. FSST moved for default judgment against Native
on February 21, 2017, and against Foxbarry on March 15, 2017. A hearing on the two
motions was held on April 18, 2017. Although FSST's attorney attended, Defendants
failed to appear. After the hearing, the district court granted FSST's motions and entered
default judgments against both Native and Foxbarry.
On January 5, 2018, Defendants moved to set aside the default judgments. In this
motion, Brautman argued the default judgment against him should be set aside under
K.S.A. 60-260(b)(1) because he had multiple pending legal matters and had no financial
means to defend the current lawsuit. The motion continued:
"Defendant Brautman believed (and still believes) he had a meritorious defense to the
claims made against him in the petition and so he obtained information from the clerk of
the court seeking additional time to respond to Plaintiff's Petition. . . . Further, Defendant
Brautman mistakenly believed that this would not affect his ability to file for a
bankruptcy potentially resolving this issue in the [least] expensive means possible at the
time."
Defendants' motion also alleged the district court should set aside the default
judgments on all three defendants under K.S.A. 60-260(b)(6) for several reasons which
will be addressed later in this opinion.
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FSST responded to Defendants' motion, arguing that Brautman consciously
ignored the lawsuit and failed to describe any meritorious defense. FSST suggested that
Brautman's failure to include FSST in his bankruptcy petition's list of creditors undercut
the credibility of Brautman's claim that his bankruptcy action would resolve his problems
in this litigation. FSST also claimed this admission by Brautman showed: "1) a
recognition of the proceedings against him in this matter and 2) a conscious decision on
his part to disregard this lawsuit because he believed it would be discharged in
bankruptcy."
A hearing was held on Defendants' motion to set aside judgment. Despite his
attorney's request that he personally appear, Brautman failed to attend the hearing. In
discussing Brautman's failure to appear, the district court stated "[Brautman] knew about
it, [he] didn't show up, which is real similar to the default hearing." Brautman's attorney
argued the motion.
At the hearing, Brautman's attorney contended that the default judgment should be
set aside under K.S.A. 60-260(b)(1) because Brautman mistakenly believed the lawsuit
was only against Native and Foxbarry and not necessarily against him individually.
Brautman's attorney claimed his failure to include FSST in his bankruptcy petition's list
of creditors demonstrated his belief that he was not an individual defendant in the
lawsuit.
All three defendants at the hearing asserted that the default judgments should be
set aside under K.S.A. 60-260(b)(6). Brautman's attorney claimed he had a meritorious
defense because he was not a party to the contracts signed between FSST and Native or
FSST and Foxbarry. Native and Foxbarry alleged they had meritorious counterclaims
against FSST that would be included in a responsive pleading. At the conclusion of the
hearing, the district court took the matter under advisement but ordered Brautman to file
an affidavit explaining his actions and inactions in the case.
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After Brautman filed an affidavit, the district court denied Defendants' motion to
set aside the default judgments. The district court found that Defendants failed to show
excusable neglect or present a meritorious defense. The district court ruled that
Brautman's claim of excusable neglect failed, in part, because personal service and his
requested extension to answer made it "highly unlikely" that Brautman was unaware he
was a defendant in the lawsuit. Instead, the district court noted that "it seems that
Brautman either thought that if he ignored the lawsuit, it would go away, or that he could
discharge any judgment in bankruptcy." Turning to Defendants' claimed defenses, the
district court ruled that Defendants' "'meritorious defenses' are general denials of the
claims against [them], without any corresponding evidence to lend force to those
denials."
Defendants appeal.
ANALYSIS
On appeal, Defendants contend the district court erred by denying their motion to
set aside the default judgments. Brautman argues that the default judgment should be set
aside under K.S.A. 2018 Supp. 60-260(b)(1) because he established excusable neglect.
For their part, Defendants collectively argue that the district court abused its discretion by
failing to set aside the default judgments under K.S.A. 2018 Supp. 60-260(b)(6).
Standards of Review
The decision to set aside a default judgment rests in the discretion of the district
court and will not be disturbed on appeal without a showing of abuse of discretion.
Garcia v. Ball, 303 Kan. 560, 565-66, 363 P.3d 399 (2015). Judicial action constitutes an
abuse of discretion if (1) no reasonable person would take the view adopted by the trial
court; (2) it is based on an error of law; or (3) it is based on an error of fact. 303 Kan. at
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566. An abuse of discretion occurs if discretion is guided by an erroneous legal
conclusion or goes outside the framework of or fails to consider proper statutory
limitations or legal standards. See Matson v. Kansas Dept. of Corrections, 301 Kan. 654,
656, 346 P.3d 327 (2015).
Standards for Setting Aside Default Judgments
Under K.S.A. 2018 Supp. 60-255(b), a district court may set aside a default
judgment for any of the grounds listed in K.S.A. 2018 Supp. 60-260(b). A district court
may relieve a party from a final judgment under K.S.A. 2018 Supp. 60-260(b)(1) upon a
showing of "[m]istake, inadvertence, surprise or excusable neglect." K.S.A. 2018 Supp.
60-260(b)(6) is also a catch-all provision, permitting a district court to set aside a
judgment for "any other reason that justifies relief."
"Default judgments are not favored by the law but are necessary when the inaction
of one party frustrates the administration of justice." First Management v. Topeka
Investment Group, 47 Kan. App. 2d 233, 239, 277 P.3d 1150 (2012). When determining
whether to set aside a default judgment, courts should resolve any doubt in favor of
setting the judgment aside so cases may be decided on their merits. Of note, Kansas law
disfavors default judgments in matters that involve large sums of money. Garcia, 303
Kan. at 568.
Brautman's Argument to Set Aside the Default Judgment Under K.S.A. 2018 Supp. 60-
260(b)(1)
Brautman contends the district court erred when it denied his motion to set aside
the default judgment based on excusable neglect under subsection (b)(1) of K.S.A. 2018
Supp. 60-260. According to Brautman, he established excusable neglect by his affidavit
which alleged: (1) He did not believe the lawsuit was against him individually; (2) he
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was in financial distress and unable to pay an attorney; and (3) he did not understand how
to defend the action given the complexity of the issues and his unfamiliarity with the law.
The district court ruled that Brautman failed to prove excusable neglect. The
district court explained:
"His claim for excusable neglect fails because Brautman admitted service and even filed
for an extension to answer. Brautman clearly knew enough about the litigation process to
file the extension without the help of an attorney. Thus, it is unlikely that Brautman was
unaware of the consequences of failing to respond. Brautman also alleges that he was
unaware that he was a defendant and that he thought the lawsuit was only against the
corporate defendants. Once again, service and his requested extension make this highly
unlikely. Brautman claims financial distress, but never informed the court of that distress
prior to the default judgment. Rather, it seems that Brautman either thought that if he
ignored the lawsuit, it would go away, or that he could discharge any judgment in
bankruptcy. Brautman cannot demonstrate mistake or excusable neglect, and this is fatal
to his motion to set aside a default judgment."
The phrase "excusable neglect" in K.S.A. 2018 Supp. 60-260(b)(1) is not clearly
defined. But inexcusable neglect is similar to reckless indifference and implies
"something more than the unintentional inadvertence or neglect common to all who share
the ordinary frailties of mankind." Jenkins v. Arnold, 223 Kan. 298, 299, 573 P.2d 1013(1978). What constitutes excusable neglect under subsection (b)(1) should be determined
on a case-by-case basis given the particular facts presented. 223 Kan. at 299.
The district court did not abuse its discretion in finding that Brautman failed to
show excusable neglect. Brautman concedes he was served with FSST's petition and
failed to file any responsive pleading. He was aware of the claims against him because he
filed an extension to respond without the assistance of an attorney. Although he knew of
the claims, Brautman presented no evidence of any actions he took to respond to the
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petition, the motion for default judgment, or the entry of the default judgment for almost
a year after the judgment was entered against him. While Brautman claims he did not
understand how to proceed with defending the lawsuit, "confusion related to proceedings
does not qualify as excusable neglect." Morton County Hospital v. Howell, 51 Kan. App.
2d 1103, 1113, 361 P.3d 515 (2015).
Brautman's assertions that he was unable to pay an attorney and was unfamiliar
with the law also fail to establish excusable neglect. Even a pro se litigant has a legal duty
to act to protect his or her interests. 51 Kan. App. 2d at 1113. Moreover, ignorance of the
rules does not constitute excusable neglect under subsection (b)(1). State v. Davisson,
303 Kan. 1062, 1069, 370 P.3d 423 (2016). Given Brautman's inaction and initial
arguments for setting aside the judgment, the district court appropriately found that
Brautman ignored the lawsuit in hopes it would disappear or that any judgment could be
discharged in bankruptcy.
The district court also rejected Brautman's allegation that he was unaware the
lawsuit was filed against him individually. Generally, our court does not weigh
conflicting evidence, pass on the credibility of witnesses, or redetermine questions of
fact. Geer v. Eby, 309 Kan. 182, 191, 432 P.3d 1001 (2019). That said, when the
controlling facts are based on written or documentary evidence through pleadings,
admissions, depositions, and stipulations, our court may determine de novo what the facts
establish. O'Neill v. Herrington, 49 Kan. App. 2d 896, 902, 317 P.3d 139 (2014). Like the
district court, we discount Brautman's assertion that he was unaware the lawsuit was
against him individually.
The procedural history of this case demonstrates that Brautman knew the lawsuit
was filed against him as an individual. He was served in October 2016. More than two
months before the other defendants were served, Brautman appeared individually to
request a clerk's extension of time. He wrote his name on the submission, made no
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reference to any other defendant, provided his personal address, and signed the
document. Additionally, before the other defendants were served, FSST moved for
default judgment against Brautman individually and the district court entered the default
judgment against him.
Another reason bolsters the district court's ruling. When the Defendants moved to
set aside the default judgments, Brautman argued that excusable neglect existed because
he believed his personal bankruptcy would resolve the matter. But FSST pointed out that
Brautman could not reasonably have believed that his bankruptcy would resolve the
litigation because he failed to include FSST as a creditor. In response, Brautman
inconsistently asserted that he did not disclose the default judgment in his bankruptcy
proceeding because he did not believe this litigation was against him individually.
Brautman's actions associated with his obtaining a clerk's extension to respond to the
lawsuit, coupled with his inconsistent arguments, support the district court's conclusion
that he did, in fact, know that FSST's lawsuit was filed against him as an individual.
Lastly, assuming Brautman, in fact, failed to recognize the significance of being
named individually in the lawsuit, the district court did not err by ruling that this reason
did not constitute excusable neglect. See First Nat'l Bank in Belleville v. Sankey Motors,
Inc., 41 Kan. App. 2d 629, 635, 204 P.3d 1167 (2009) (affirming finding of no excusable
neglect when petition requested money judgment but debtor mistakenly identified the
claim as a foreclosure action and chose not to file a responsive pleading).
In summary, the district court did not abuse its discretion in finding that Brautman
failed to establish excusable neglect and in denying his request to set aside the default
judgment under K.S.A. 60-260(b)(1).
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Defendants' Argument to Set Aside the Default Judgments Under K.S.A. 2018 Supp. 60-
260(b)(6)
Defendants collectively contend the district court abused its discretion by failing
to apply the proper legal standards to evaluate their motion to set aside judgment under
subsection (b)(6) of K.S.A. 2018 Supp. 60-260. According to the Defendants, when
evaluated under the correct legal standards, they established reasons justifying relief
under the catch-all provision of subsection (b)(6).
When outlining the legal standards that apply to motions to set aside a default
judgment, the district judge stated:
"A motion to set aside default judgment may be granted whenever the court finds: (a)
that the non-defaulting party will not be prejudiced by the reopening; (b) that the
defaulting party has a meritorious defense; and (c) that the default was not the result of
inexcusable neglect or a willful act. This must be done by clear and convincing evidence.
Failure to demonstrate even one of these factors is fatal to a motion to set aside.
[Citations omitted.]"
In applying these legal standards, the district court did not specifically separate
Defendants' subsection (b)(1) and subsection (b)(6) claims. Instead, the district court
combined the analysis and denied the motion to set aside the default judgments for the
reasons that the Defendants failed to show excusable neglect or meritorious defenses.
Defendants assert the district court erred as a matter of law by applying these legal
standards when denying their motion to set aside judgment under subsection (b)(6).
Specifically, Defendants claim these legal standards were improper because they (1)
required a finding of no inexcusable neglect and (2) imposed a clear and convincing
evidence standard of proof. FSST responds that the district court applied these standards
only on Defendants' subsection (b)(1) claims and not the subsection (b)(6) claims.
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Upon our review, the district court appears to have applied the complained-of
legal standards to all Defendants' grounds to set aside the default judgments, including
the Defendants' arguments under subsection (b)(6). After finding that Defendants failed
to show excusable neglect, the district court explained this finding "is fatal to [their]
motion to set aside judgment." This suggests the district court required a finding of no
inexcusable neglect as to all Defendants' grounds to set aside the default judgments, not
only Defendants' subsection (b)(1) claims. Moreover, the district court did not distinguish
between the different standards applicable to Defendants' various grounds to set aside the
judgments. As a result, we are persuaded that the district court applied the complained-of
legal standards to Defendants' arguments under subsection (b)(6).
As Defendants complain, subsection (b)(6) does not require a party to show no
inexcusable neglect. Initially, in Montez v. Tonkawa Village Apartments, 215 Kan. 59,
Syl. ¶ 4, 523 P.2d 351 (1974), our Supreme Court held:
"A motion to set aside a default may be granted whenever the court finds (1) that
the nondefaulting party will not be prejudiced by the reopening, (2) that the defaulting
party has a meritorious defense, and (3) that the default was not the result of inexcusable
neglect or a willful act." (Emphasis added.)
These three considerations listed in Montez for setting aside default judgments are called
the Montez factors.
More recently, however, our Supreme Court in Garcia addressed how the Montez
factors affect a motion made under the catch-all provision of subsection (b)(6). Before
Garcia, Kansas courts often treated the Montez factors as elements a movant needed to
prove in any action to set aside a default judgment. See, e.g., Sankey Motors, Inc., 41
Kan. App. 2d at 634. But the Garcia court clarified that proving no inexcusable neglect
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was not a requirement to obtain relief under subsection (b)(6). Garcia, 303 Kan. at 569-
70.
Like Defendants here, the defendant in Garcia sought to set aside a default
judgment under subsections (b)(1) and (b)(6). The Garcia court held that, since relief
under subsection (b)(1) is based on excusable neglect, a party need not establish
excusable neglect to obtain relief under subsection (b)(6) because that requirement would
always render subsection (b)(6) superfluous. 303 Kan. at 569. The court distinguished
Montez, finding Montez involved only excusable neglect and inadvertence. Garcia, 303
Kan. at 569. The court then emphasized:
"In that vein, the Montez factors should be considered viable benchmarks for judicial
discretion in determining whether relief from a default judgment is warranted under
K.S.A. 60-260(b) but should not be rigidly adhered to when determining the existence of
'any other reason justifying relief' pursuant to K.S.A. 60-260(b)(6)." 303 Kan. at 570.
In the present case, while the district court discussed the Montez factors in its
evaluation of the Defendants' (b)(6) claim, as discussed later, we do not consider that the
district court "rigidly adhered" to the third Montez factor in making its ruling.
Next, we consider the Defendants' objection to the district court's mention that
clear and convincing proof was necessary to set aside a default judgment. Whether a clear
and convincing evidence standard is the appropriate burden of proof presents a murkier
question in Kansas law. Our court has previously noted the tension in Kansas law
regarding the movant's burden of proof to set aside a default judgment. In re Marriage of
Mullokandova & Kikirov, No. 108,601, 2013 WL 5422358, at *3 (Kan. App. 2013)
(unpublished opinion). Both our court and the Kansas Supreme Court have stated that the
grounds for a motion under K.S.A. 60-260(b) must be proven by clear and convincing
evidence. State ex rel. Stovall v. Alivio, 275 Kan. 169, 173, 61 P.3d 687 (2003); First
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Management, 47 Kan. App. 2d at 239. In particular, our Supreme Court has found that a
movant must prove by clear and convincing evidence that judgment should be set aside
under subsection (b)(6). In re Marriage of Zodrow, 240 Kan. 65, 68, 727 P.2d 435(1986).
Although Kansas courts previously have required clear and convincing evidence to
set aside default judgments, our court in In re Marriage of Mullokandova questioned the
basis for imposing a clear and convincing evidence standard. The In re Marriage of
Mullokandova court traced the requirement of clear and convincing evidence standard to
Lee v. Brown, 210 Kan. 168, 170, 499 P.2d 1076 (1972), and explained:
"In [Lee], the Kansas Supreme Court stated that the grounds for a motion under K.S.A.
60-260(b) must be proven by clear and convincing evidence and cited generally Cool v.
Cool, 203 Kan. 749, 457 P.2d 60 (1969). But Cool dealt with relief under K.S.A. 60-
260(b)(3) based on fraud. Fraud typically must be proven by clear and convincing
evidence, and K.S.A. 60-260(b)(3) is no exception. Nonetheless, the overly broad
generalization in Lee has crept into Kansas caselaw. [Citations omitted.]" In re Marriage
of Mullokandova, 2013 WL 5422358, at *3.
After this court questioned imposing a clear and convincing evidence standard in
In re Marriage of Mullokandova, our Supreme Court issued Garcia, which reiterated that
any doubts in analyzing a motion to set aside a judgment should be resolved in the
movant's favor. The Garcia court also found that "K.S.A. 60-260(b)(6) 'is to be liberally
construed to preserve the delicate balance between the conflicting principles that
litigation be brought to an end and that justice be done in light of all the facts.'" 303 Kan.
at 570 (quoting In re Estate of Newland, 240 Kan. 249, 260, 730 P.2d 351 [1986]). These
standards for a motion to set aside are arguably less onerous than the clear and
convincing evidence standard. See In re Marriage of Mullokandova, 2013 WL 5422358,
at *3. The Garcia court also failed to mention such an elevated standard on the movant.
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It should be noted that the district court never specifically stated that it required
the Defendants to meet a clear and convincing standard of proof. Instead, it simply
mentioned the standard as part of a brief summary of Kansas laws regarding motions to
set aside default judgments. Like the court in In re Marriage of Mullokandova, however,
we assume without deciding that the usual civil standard of a preponderance of the
evidence is appropriate in evaluating whether to set aside a default judgment.
Assuming the district court applied incorrect legal standards, we next consider
whether this error is harmless. See K.S.A. 2018 Supp. 60-261 ("At every stage of the
proceeding, the court must disregard all errors and defects that do not affect any party's
substantial rights."); K.S.A. 60-2105; cf. State v. Ultreras, 296 Kan. 828, 845, 295 P.3d
1020 (2013) ("[T]he application of an erroneous standard and burden of proof when
ruling on a motion to dismiss that is based on a claim of immunity may be harmless
error."). Because any error relates to the application of a statutory right, we must be
persuaded that there is no reasonable probability that the error affected the outcome of the
district court's order given the entire record for it to be considered harmless. State v.
McCullough, 293 Kan. 970, 983, 270 P.3d 1142 (2012).
We are persuaded there is no reasonable probability that the error affected the
outcome of the district court's order. Additionally, reasonable persons could agree with
the district court's decision to deny Defendants' motion to set aside the default judgments.
Here, the district court recognized that Kansas law disfavors default judgments in
matters that involve large sums of money. The district court also specifically cited to the
Garcia decision, wherein the Kansas Supreme Court affirmed the trial court's ruling to
set aside a default judgment when the movant had meritorious defenses. The district
court, however, spent considerable time distinguishing Garcia and concluded:
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"The Court recognizes that $404,462.11 plus interest and costs is a large sum of
money; however . . . this large sum does not outweigh [Defendants'] failure to
demonstrate excusable neglect or meritorious defenses. . . . [Defendants'] inaction has
frustrated the administration of justice, and although courts disfavor default judgments,
the circumstances in this case are such that a default judgment is merited."
K.S.A. 2018 Supp. 60-260(b)(6) allows a district court to set aside a default
judgment for any reason that justifies relief. Again, the Montez factors are "viable
benchmarks for judicial discretion" when deciding motions to set aside judgments, but
they should not be rigidly adhered to when determining whether any reason justifies
relief under subsection (b)(6). Garcia, 303 Kan. at 570.
As the district court recognized, the factual circumstances in this case differ from
those in Garcia. In Garcia, one month after the district court granted default judgment,
the defendant moved to set aside the judgment arguing that the statute of limitations had
run and the plaintiff had failed to state a claim for relief. The district court granted the
defendant's motion because the law dislikes default judgments and the defendant had
meritorious defenses. The Garcia court held that the district court did not abuse its
discretion in granting the defendant's motion to set aside the default judgment under
subsection (b)(6). 303 Kan. at 571. Our Supreme Court found that the district court's
judgment was reasonable, in part, because of "the factual circumstance that [the
defendant] had a meritorious defense" which was readily discernable from the plaintiff's
petition. 303 Kan. at 568.
Unlike the one-month period in Garcia, Defendants in this case waited
significantly longer before moving to set aside the default judgments. Brautman waited
360 days before moving to set the judgment aside. Native and Foxbarry waited over eight
months before seeking relief. After Defendants moved to set aside the default judgments,
they failed to personally appear at the hearing on their motion. This caused additional
obstacles and delays because an affidavit by Brautman was needed in lieu of Defendants'
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anticipated testimony. These actions and inactions supported the district court's finding
that Defendants frustrated the administration of justice.
The district court also found that the Defendants failed to demonstrate any
meritorious defenses. In this regard, movants must do more than just allege they have a
meritorious defense, instead they must demonstrate a meritorious defense or impaired
interest. AkesoGenX Corp. v. Zavala, 55 Kan. App. 2d 22, 48-49, 407 P.3d 246 (2017),
rev. denied 308 Kan. 1593 (2018). In AkesoGenX—a case the district court heavily relied
on—our court rejected the movant's meritorious defense claims because he failed to
present evidence that the plaintiff's claims of breach of fiduciary duty and conversion
were false. The AkesoGenX court then affirmed the district court's denial of the motion to
set aside the default judgment, noting that the movant failed to explain why he had a
meritorious defense, and finding that he admitted he was simply ignoring the lawsuit,
hoping it would go away. 55 Kan. App. 2d at 49.
As the district court in this case found, most of Defendants' defenses were general
denials or alleged counterclaims with no corresponding evidence proffered to support the
assertions. Moreover, unlike Garcia, no defenses are evident from the petition filed by
FSST. Although Brautman argues he did not sign the contracts in his individual capacity,
he does not explain how this defense absolves him of liability on the several claims not
based in contract. Additionally, other than suggesting that piercing the corporate veil is
difficult, Brautman provided no defense to FSST's alter ego claims. As in AkesoGenX,
Defendants proffered no evidence or otherwise demonstrated they had a meritorious
defenses.
While courts do not favor default judgments, using the Montez factors as viable
benchmarks, we cannot say the district court committed reversible error by denying the
Defendants' motion to set aside the default judgments.
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We also find there is no reasonable probability that the claimed use of incorrect
legal standards affected the outcome of the district court's order. As discussed earlier, the
district court heavily relied on the analysis in AkesoGenX—a case relying on the law in
Garcia—while carefully justifying why the two cases required different outcomes. Upon
our consideration of the entire record, we conclude any error by the district court was
harmless.
Affirmed.
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