Kenner v. Moran , 51 St. Rep. 94 ( 1994 )

NO. 93-374
IN THE SUPREME COURT OF THE STATE OF MONTANA
1994
HAMILTON G. KENNER, and
ERNO, INC. ,
Plaintiffs and Appellants,
v.
LARRY W. MORAN, Trustee,
Defendant and Respondent.
APPEAL FROM: District Court of the Fifth Judicial District,
In and for the County of Madison,
The Honorable Frank M. Davis, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Hamilton G. Kenner, Pro Se,
Cameron, Montana
For Respondent:
Michael P. Sand, Sand Law Office,
Bozeman, Montana
Submitted on Briefs: November 23, 1993
Decided: February 11, 1994
Filed:
~d Smid
CLERK OF SUPREME COURi
STATE OF MOlrllPIOIP,
Clerk ..
Justice Terry N. Trieweiler delivered the opinion of the Court.
Hamilton G. Kenner filed a complaint in the District Court for
the Fifth Judicial District in Madison County to set aside a
default judgment entered against him in a quiet title action
initiated by Larry W. Moran against Kenner and others. At the time
of the hearing on Kennerls complaint to set aside the default
judgment, Moran filed a counterclaim in which he sought specific
performance of the parties1 contract for deed. The court denied
Kennerls request to set aside the default judgment and granted
summary judgment in favor of Moran on the counterclaim, Kenner
appeals the orders and judgment of the ~istrictCourt.
We reverse.
The issues on appeal are restated as follows:
1. Did the District Court abuse its discretion when it
refused to set aside the default judgment based upon its finding
that Kenner had received adequate notice prior to entry of the
decree?
2. Did the District Court err when it granted summary
judgment in Moran8s favor and ordered specific performance of the
contract for deed?
In 1980, trustee Larry W. Moran, as seller, entered into a
contract for deed with ~amilton G, Kenner and Central States
Investment Company (CSI) for the sale and purchase of 1938 acres of
real property located south of Ennis, adjacent to the Madison
River. After Kenner and CSI failed to make the November 1, 1984,
annual payment, Moran and Kenner negotiated a modification
agreement which permitted Kenner to cure the default and changed
the annual due date.
In June 1985, Kenner requested a release of 280 acres of
river-front property in consideration for payments already made on
the contract. Based on Kenner's alleged representations that all
property taxes and BLM lease payments were current on these
parcels, and that all future contract payments would be timely,
Moran quitclaimed this property to Kenner on July 2, 1985. Moran
alleges that Kenner defaulted on those contract payments and has
remained in default since that time.
On September 2, 1986, Moran filed a complaint to quiet title
to all the property subject to the purchase agreement, including
the parcels which had been quitclaimed to Kenner. He alleged he
had been induced to quitclaim that parcel based on Kenner's
misrepresentation that the taxes and lease payments were current.
In addition to Kenner and CSI, eight other persons or entities who
claimed an interest in the property were named as defendants.
On December 8, 1986, and January 23, 1987, Kenner appeared in
the quiet title action by filing motions to dismiss. These motions
were denied on May 5, 1987, because no supporting briefs were
filed, and Kenner was given 20 days in which to further plead.
On June 15, 1987, Moran wrote to Kenner's attorney, Larry
Jent, proposing an agreement which would allow Kenner to reinstate
the contract by bringing all payments up to date, and offering a
settlement of the quiet title litigation. On July 13, 1987, Jent
notified Moran that Kenner would accept the terms of the settlement
proposal if Moran would quiet title against the other defendants.
A quiet title decree was entered against all defendants except
Kenner on August 4, 1987. Moran then informed Jent that he was
prepared to proceed with the settlement agreement. However, he
received no response. On several occasions thereafter, Moran
notified Jent that the quiet title action would proceed against
Kenner if the terms of the settlement agreement were not fulfilled
as agreed upon by Kenner and if no response was received. Moran
received no response to these communications.
On February 9, 1990, Moran moved the clerk of court for entry
of default against Kenner due to his ttfailure plead or otherwise
to
defend1'in the quiet title action for nearly three years. On that
same date, he moved the court to enter a judgment against Kenner on
the basis that the time to answer the summons and complaint had
expired and Kenner had Itnot answered or plead herein." However,
Moran did not first notify Jent or Kenner of his intention to apply
for the default or the default judgment.
The clerk entered Kenner's default on February 9, and the
court entered a default judgment on February 20, 1990, in which
Moran's title to the entire parcel under the contract for deed,
including the parcels quitclaimed to Kenner, was quieted. However,
no notice of entry of judgment was semed on Kenner or Jent.
In July 1991, Kenner attempted to sell one of the quitclaimed
properties. He discovered that a judgment had been entered against
him when a title insurance company refused to issue a policy.
On September 23, 1992, Kenner and ERNO, Inc., the successor in
interest to the disputed properties, filed an independent action
pursuant to Rule 60(b), M.R.Civ.P., to set aside the default
judgment on two grounds. Kenner alleged that he had neither been
notified of the application for a default judgment, nor of the
entry of judgment, and furthermore, that the decree had been
obtained on the basis of fraud upon the court.
Kenner moved for summary judgment and a hearing was held on
February 9, 1993. At the time of the hearing, Kenner was served
with a counterclaim by Moran seeking specific performance of the
contract for deed. Morants attorney then requested the court to
enter summary judgment on the counterclaim in favor of Moran. He
acknowledged that no motion for summary judgment had been filed,
but asserted that no motion was required because Kenner had already
sought judgment in his favor. After the hearing, Kenner filed an
answer to the counterclaim in which he set forth six affirmative
defenses.
The court issued its findings and order on May 7, 1993. The
court found that Kenner had made two appearances in the quiet title
action by virtue of his motions to dismiss. Therefore, pursuant to
5 25-3-401, MCA, Kenner or his attorney were entitled to notice of
all subsequent proceedings "of which notice is required to be
given." The court found that notice had not been provided as
required under Rule 55(b)(2), M.R.Civ.P. However, the court noted
that a default judgment entered without notice is voidable and the
lack of notice should be considered in light of surrounding
5
circumstances. The court found that Kenner had been "clearly and
consistently forewarned that Moran intended to proceed with his
quiet title action against Kenner soon.mt Moreover, the court found
no "good causem to set aside the decree because Kenner offered no
excuse for his failure to answer and was not an %nsuspecting and
unawareqfdefendant. Therefore, the court concluded that the lack
of n o t i c e did not r e q u i r e setting aside the decree because Kenner
had "adequate actual personal notice prior to the entry of
default.
The court further concluded that there had been no commission
of extrinsic fraud or fraud upon the court to justify setting aside
the decree.
In its judgment entered on May 24, 1993, the court denied
Kennerls motion for summary judgment and refused to set aside the
quiet title decree entered by default. It granted summary judgment
on Moranfs counterclaim, and ordered Kenner to specifically perform
the settlement agreement entered into with Moran on July 13, 1987.
From this judgment, Kenner appeals.
ISSUE 1
Did the District Court abuse its discretion when it refused to
set aside the default judgment based upon its finding that Kenner
had received adequate notice prior to entry of the decree?
Rule 55(c), M.R.Civ.P., allows for the setting aside of an
entry of default when there is good cause and "if a judgment by
default has been entered, [the court] may likewise set it aside in
accordance with Rule 60(b)."
Rule 60(b), M.R.Civ.P., sets forth reasons entitling a party
to relief from a final judgment or order when a timely objection is
made. In addition, the rule contains the following residual
clause:
This rule does not limit the power of a court to
entertain an independent action to relieve a party from
a judgment, order, or proceeding, or to arant relief to
a defendant not actuallv ~ersonallvnotified as mav be
rewired bv law, or to set aside a judgment for fraud
upon the court. [Emphasis added].
Kennertsaction to set aside the default judgment was filed
pursuant to this residual clause. Although Kenner asserts that
grounds exist to set aside the judgment on the basis of extrinsic
fraud and fraud upon the court, KennerSsprimary contention is that
he is entitled to relief because he was not personally served with
notice as required by law,
Kenner directs this Court's attention to Rule 55(b) ( 2 ) ,
M,R.Civ.P., which provides that:
If the party against whom judgment by default is sought
has appeared in the action, the party (or, if appearing
by representative, the party's representative) shall be
served with written notice of the application for
judgment at least 3 days prior to the hearing on such
application.
It is undisputed that Kenner "appeareda' in the quiet title
action when he filed motions to dismiss, and that Moran did not
serve written notice of the application for default judgment on
Kenner or his attorney prior to the hearing on Morantsapplication,
On this basis, Kenner contends that he is entitled to have the
judgment set aside because he was not "actually personally
notified1* required by law.
as
In support of this contention, Kenner relies on our holding in
Big Spring v. Blackj2et %be (1978), 175 Mont. 258, 573 P.2d 655, where we
made clear that if a party appears by filing a motion, he is
entitled to notice of all subsequent proceedings. Kenner asserts
that it was an abuse of discretion for the court to deny his
summary judgment motion when the facts clearly demonstrate that he
was entitled to written notice of the application for a default
judgment .
Where a trial court fails to grant a motion to set aside a
default judgment, the finding of even a slight abuse of discretion
is sufficient to justify reversal of such an order. In re Mam'age of
McDonald (1993), 863 P.2d 401, 50 St. Rep. 1411; EmpireLathv.American
Casuahy (1993), 256 Mont. 413, 847 P.2d 276.
This Court has stated on several occasions that the failure to
provide notice to the defaulting party as required under
Rule 55 (b) (2), M.R. Civ.P., renders a default judgment premature and
voidable. Marriage of Neneman (l985), 217 Mont. 155, 159, 703 P.2d
164, 167.
In this instance, the District Court conceded that Kenner had
appeared in the quiet title action and was entitled to actual
written notice as required under Rule 55(b)(2), M.R.Civ.P.
However, it concluded that Moran had communicated to Kenner and his
attorney Ifadequatepersonal noticennof his intent to pursue the
litigation, and therefore, failure to comply with the notice
requirements did not require setting aside the decree.
After reviewing the record and considering the surrounding
circumstances, we concludethatMorannsinformal threats to proceed
with his case were not the equivalent of notice that he would apply
for a default judgment and notice of a date on which Kenner could
appear and object to the entry of a judgment by default. This
failure to notify of the application for default was compounded by
Moran's failure to notify Kenner pursuant to Rule 77(d),
M.R.Civ.P., that judgment had in fact been entered. On that basis,
this case is distinguishable from our prior decisions in Williamsv.
SuperiorHomes,Inc. (1966), 148 Mont. 38, 417 P.2d 92, and Sikodi&Sons
v.Sikonla' (1973), 162 Mont. 442, 512 P.2d 1147, where we declinedto
set aside default judgments for lack of notice. In this instance,
we conclude that the court abused its discretion when it refused to
set aside the decree.
We do not condone Kennerns own disregard for the procedural
rules that he was required to follow in the quiet title action.
However, Rule 55(b) (2), M.R. Civ. P., presumes that the defaulting
party has not complied with the rules in some respect and still
requires that notice be given to that party. Morannsnoncompliance
with our rules cannot be justified on the basis of Kennernsearlier
noncompliance with those rules.
Taking all of the facts into consideration, we conclude that
the circumstances of this case justify setting aside the default
judgment .
ISSUE 2
Did the District Court err when it granted summary judgment in
Moranls favor and ordered specific performance of the contract for
deed?
This Court reviews an order of summary judgment by utilizing
the same criteria used by a District Court initially under Rule 56,
M.R.Civ.P. Minniev.CityofRoundup (19931, 257 Mont. 429, 849 P.2d
212. Summary judgment is proper when no genuine issues of material
fact exist and the moving party is entitled to judgment as a matter
of law, Minnie, 849 P.2d at 214.
At the time of the hearing on Kenner's summary judgment motion
to set aside the decree, Moran filed a counterclaim seeking
specific performance of the settlement agreement that had been
entered into after default was taken against the other defendants,
Although no summary judgment motion w a s made on the counterclaim in
accordance with Rule 56, H.R.Civ.P., the court, in its order,
granted summary judgment in favor of Horan on the counterclaim.
Moran contends that no separate motion was required and that the
court had authority to render summary judgment on the counterclaim
based on this Court's decision in Canal Insurance Company v. Bunday
(1991), 249 Mont, 100, 813 P.2d 974.
In Canal, 813 P.2d at 979, we held that this Court could
reverse a district court's order granting summary judgment and
order it to enter summary judgment in favor of the other party when
there are no issues of material fact and all of the facts bearinq
on the issues are before the court. In such a situation, a court
could determine that the undisputed facts entitle the non-moving
party to summary judgment.
The situation presented here, however, is not comparable to
Canal. Here, Kenner moved for summary judgment based on his
complaint to set aside the default judgment. Moran filed a
counterclaim seeking specific performance of a settlement
agreement. The court heard testimony to determine whether there
were grounds to set aside the judgment. The evidence did not
relate to whether the settlement agreement was enforceable or
whether Moran was entitled to equitable relief in the form of
specific performance. The facts and issues pertinent to the
counterclaim are not the same as those pertinent to the issue of
setting aside the default judgment. The transcript reveals that
Kenner did not offer testimony on the issues germane to Moran's
counterclaim and the court did not address the affirmative defenses
raised by Kenner after the hearing.
Under Rule 56 (a), M.R. Civ. P., a claimant is allowed to move
for summary judgment twenty days after the action is commenced.
Rule 56(c), M.R.Civ.P., requires service of written notice upon the
adverse party ten days before the time fixed for hearing on the
motion. These procedural safeguards insure that an adverse party
is given a full and fair opportunity to resist a summary judgment
motion and demonstrate the presence of justiciable issues of fact.
We conclude that the facts bearing on issues raised in the
counterclaim were not before the court and that Kenner was not
given the proper opportunity to offer evidence in opposition to
Moran's request for summary judgment. Therefore, we hold that the
court erred when it granted summary judgment on the counterclaim in
the absence of a motion complying with Rule 56, M.R.Civ.P.
The judgment of the District Court is reversed and vacated.
The default judgment entered against Kenner in the quiet title
action is set aside.
February 11, 1994
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the following
named:
Hamilton G. Kenner, Esq.
607 Highway 98 East
Destin, FL 32541
Michael P. Sand, Esq.
Sand Law Office
1700 West Koch
Bozeman, MT 59715
ED SMITH
CLERK OF THE SUPREME COURT
BY: