Rdg Oil & Gas, Llc, a Nevada Limited Liability Company , 2014 WY 102 ( 2014 )

IN THE SUPREME COURT, STATE OF WYOMING
2014 WY 102
APRIL TERM, A.D. 2014
August 15, 2014
RDG OIL & GAS, LLC, a Nevada limited
liability company,
Appellant
(Defendant),
S-14-0052
v.
JAYNE MORTON LIVING TRUST,
Appellee
(Plaintiff).
Appeal from the District Court of Johnson County
The Honorable William J. Edelman, Judge
Representing Appellant:
Patrick G. Davidson and Matthew R. Sorenson of Daly Davidson & Sorenson,
LLC, Gillette, WY. Argument by Mr. Sorenson.
Representing Appellee:
Anthony T. Wendtland of Wendtland & Wendtland, LLP, Sheridan, WY.
Before BURKE, C.J., and HILL, KITE*, DAVIS, and FOX, JJ.
*Chief Justice at time of oral argument.
NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third.
Readers are requested to notify the Clerk of the Supreme Court, Supreme Court Building,
Cheyenne, Wyoming 82002, of any typographical or other formal errors so that correction may be
made before final publication in the permanent volume.
HILL, Justice.
[¶1] Dan C. Morton, predecessor in interest to the Jayne Morton Trust, successfully bid
on several federal oil and gas leases in Natrona and Johnson counties. To develop these
leases Morton sought the assistance of RDG Oil and Gas, LLC and in 2005 the parties
entered into two agreements for the development of the leases. In 2012 the Jayne Morton
Living Trust filed a breach of contract claim against RDG to which it did not respond.
The district court entered a default judgment against RDG which it eventually moved to
set aside. The district court denied its motion and this appeal followed.
ISSUE
[¶2] RDG presents one issue for our review:
Whether the district court abused its discretion in denying
RDG’s motion to set aside the entry of default and the entry of
default judgment?
FACTS
[¶3] Dan C. Morton successfully bid on several federal oil and gas leases in Natrona
and Johnson counties. To develop these leases he sought the assistance of RDG Oil and
Gas, LLC. The parties entered into two separate agreements to further develop the
leases.
[¶4] The first agreement pertained to federal oil and gas lease WYW 141812
(Agreement 1). This agreement required RDG to re-complete three wells (Blough 1,
Blough 2, and Catterson). RDG also agreed to drill one horizontal well in the Ten Sleep
formation in 2005. After the re-completion, and in the event the horizontal well resulted
in production, RDG and Morton would determine how to proceed. If RDG chose not to
continue with development, RDG agreed to assign all undeveloped acreage back to
Morton and RDG would then retain all interest in those lands where production was
obtained.
[¶5] The second agreement is referred to as the “Tisdale Prospect Agreement.” Under
this agreement RDG agreed to purchase the prospect acquired by Morton. RDG was to
reimburse Morton for his costs in acquiring the Tisdale lease and RDG agreed to drill one
well and “fully develop” the Tisdale prospect. Development was to occur unless one of
two conditions existed: (1) the inability to secure adequate access and surface rights, or
(2) the economic viability of the field.
[¶6] In 2012 Morton’s successor in interest, the Jayne Morton Living Trust (“the
Trust”), filed a complaint in the district court for an alleged breach of contract of both
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agreements. Morton Trust alleged that as to Agreement 1, RDG failed to re-complete the
Blough 2 and Catterson wells, failed to obtain production from the leases in question,
failed to pursue a continuous drilling program, and failed to drill the Horizontal Well.
The Trust also alleged that RDG failed to tender taxes to the State of Wyoming which in
turn created a risk that the leases could be lost to foreclosure. As to the Tisdale
Agreement the Trust asserted that RDG “lost” certain leases involved by virtue of non-
payment of rentals and non-development. Also, the Trust alleged that RDG failed to drill
and develop the Tisdale Prospect as contemplated under the agreement and allowed
certain leases to revert back to the federal government.
[¶7] The complaint that alleged breach of contract was served on RDG’s registered
agent, WyomingRegisteredAgent.com, Inc. A return of service indicates that service was
obtained on Sarah Garcia on November 2, 2012 at a place of business called
WyoRegisteredAgent, located at 1621 Central Avenue, Cheyenne, Wyoming. The
complaint and summons were not forwarded to RDG. RDG’s answer was due, in
accordance with W.R.C.P. 12(a), on or before November 26, 2012. That day came and
went without any response from RDG and on November 28, 2012 the clerk made an
entry of default. Notice of entry of default was served on RDG by mailing the notice to
RDG’s same record agent for service of process. The Trust also moved for entry of
default against RDG on the same day as the court and served copies on RDG at the
offices of the same record agent.
[¶8] On December 28, 2012 the district court entered a default judgment against RDG.
Again, the notice of judgment was served on RDG at the same office of its record agent.
It was not until mid-January 2013 that RDG became aware of the default judgment. Over
six months later RDG filed a motion to set aside the entry of default and the default
judgment.
[¶9] The district court set a hearing on RDG’s motions for October of 2013. The Trust
filed its response on August 23, 2013. A trial was held October 8, 2013, whereafter the
district court denied RDG’s motions. RDG filed its Notice of Appeal on December 13,
2013.
STANDARD OF REVIEW
[¶10] “Decisions resolving motions for setting aside the entry of
default or a default judgment are made in the exercise of sound
discretion by the trial court.” Fluor Daniel, Inc. v. Seward,
956 P.2d 1131, 1134 (Wyo. 1998).
Rules 55(c) and 60(b), W.R.C.P., are remedial and are
intended to promote decisions on the merits when
possible. A trial court has wide judicial discretion to
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grant or deny a defendant’s motion under these rules. We
will not disturb the exercise of that discretion unless
appellant demonstrates that the trial court abused it and
was clearly wrong.
Nowotny v. L & B Contract Indus., 933 P.2d 452, 460 (Wyo.
1997) (quoting Claassen v. Nord, 756 P.2d 189, 193 (Wyo.
1988)) (internal citations omitted). The proponent of a motion
to set aside default judgment has the burden of proving that he
is entitled to relief. Lykins v. Habitat for Humanity, The Heart
of Wyo., Inc., 2010 WY 118, ¶ 10, 237 P.3d 405, 408 (Wyo.
2010).
Rosty v. Skaj, 2012 WY 28, ¶ 27, 272 P.2d 947, 956-957 (Wyo. 2012).
DISCUSSION
[¶11] RDG argues on appeal that the district court abused its discretion when it denied
RDG’s motion to set aside the entry of default and default judgment. RDG contends that
because RDG’s registered agent did not forward the summons and complaint or
subsequent pleadings to RDG that its failure to then answer was for good cause and/or a
result of excusable neglect. In order to prevail on appeal RDG has the burden of showing
that the district court abused its discretion. We conclude that RDG has not met its burden.
[¶12] We have explained the entry of default before:
Entry of default is a clerical act performed by the clerk
of court and is not a judgment. W.R.C.P. 55(a). The entry of
default forecloses the defaulting party from making any further
defense or assertion with respect to liability or any asserted
claim. Vanasse v. Ramsay, 847 P.2d 993, 996-97 (Wyo. 1993)
(quoting Spitzer v. Spitzer, 777 P.2d 587, 592 (Wyo. 1989)).
“Although the entry of default generally establishes the fact of
liability according to the complaint, it does not establish either
the amount or the degree of relief.” Id.
Multiple Resort Ownership Plan, Inc. v. Design-Build-Manage, Inc., 2002 WY 67, ¶ 9,
45 P.3d 647, 651 (Wyo. 2002).
[¶13] The procedure for setting aside an entry of default is set forth in W.R.C.P. 55(c):
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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).
To determine whether a default judgment may be set aside for good cause Wyoming has
established a three-factor test. The three factors that this Court has held are relevant to
this determination are: (1) whether the plaintiff will be prejudiced; (2) whether the
defendant has a meritorious defense; and (3) whether culpable conduct of the defendant
led to the default. M & A Const. Corp. v. Akzo Nobel Coatings, Inc., 936 P.2d 451, 454-
55 (Wyo. 1997).
[¶14] Likewise, W.R.C.P. 60(b) provides the procedure for setting aside a default
judgment, in pertinent part:
(b) Other reasons. – 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[.]
This Court has explained “excusable neglect” as it has appeared in our jurisprudence as
follows. “Excusable neglect is measured on a strict standard to take care of genuine
emergency conditions, such as death, sickness, undue delay in the mails, . . . and other
situations where such behavior might be the act of a reasonably prudent person under the
circumstances.” Crossan v. Irrigation Development Corp., 598 P.2d 812, 813 (Wyo.
1979) (quoted in Chevron U.S.A., Inc., v. Department of Revenue, 2007 WY 62, ¶ 9, 155
P.3d 1041, 1043 (Wyo. 2007)).
[¶15] Whether it be due to excusable neglect, good cause, or otherwise, this Court has
consistently applied strict standards in both affirming and reversing the entry of default
and default judgments. In Vanasse v. Ramsay, 847 P.2d 993, 997-98 (Wyo. 1993), this
Court reversed a trial court decision setting aside entry of default where the defaulted
party had relied upon its insurance company to answer the complaint after service and
had not ensured that a response was timely filed. We stressed that a movant’s lack of
diligence can manifest itself in a number of ways:
We find a number of reasons why the district court
should not have set aside the default judgment in this case, the
first being that the defendants did not bring themselves within
Rule 60(b) as required by U.S. Aviation. The district court
reiterated the reasons acceptable under 60(b)(1) and found
there to be “no such showing in this case by the Defendants.”
Defendants argue primarily that the on-going settlement
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negotiations excuse the failure to file an answer until fifty-nine
days after petitioner’s complaint was filed and constitute
“excusable neglect” or “surprise” under Rule 60(b). We find,
as did the district court, that defendants cannot support this
claim. See, Matter of Injury to Seevers, 720 P.2d 899, 903
(Wyo. 1986) (“failure to consult an attorney for nearly two
months is not such excusable neglect as would justify relief”);
Booth, 548 P.2d at 1254 (failure to hire an attorney until 53
days following service of the complaint would not constitute
excusable neglect); Zuelzke Tool and Eng’g v. Anderson Die
Castings, 925 F.2d 226, 229 (7th Cir. 1991) (“where a party
willfully, albeit through ignorance or carelessness, abdicates
its responsibilities, relief from judgment under Rule 60(b) is
not warranted”); United States v. Topeka Livestock Auction,
Inc., 392 F. Supp. 944, 950-51 (N.D. Ind. 1975) (“It has been
said that ongoing settlement negotiations are not a sufficient
reason for a failure to file an answer.”); Fed. Sav. and Loan
Ins. Corp. v. Kroenke, 858 F.2d 1067, 1071 (5th Cir. 1988)
(claim of “surprise” or “excusable neglect” was meritless
where party failed to file an answer in reliance upon settlement
negotiations); Atchison, Topeka and Santa Fe Ry. v.
Matchmaker Inc., 107 F.R.D. 63, 65 (1985) (“It is well
established that failure to seek advice of counsel does not
constitute excusable neglect.”); Asso. Press v. J.B.
Broadcasting, 54 F.R.D. 563, 564 (1972) (no adequate excuse
shown for failure to refer matter to counsel). We hold that
“statutes should not be construed to be meaningless” and we
would be “stretching reality to the breaking point to find
mistake, inadvertence, surprise, or excusable neglect.” U.S.
Aviation, 664 P.2d at 126.
Vannase, 847 P.2d at 997-98.
[¶16] In Multiple Resort Ownership Plan, Inc. v. Design-Build-Manage, Inc., 2002 WY
67, ¶ 14, 45 P.3d 647, 652 (Wyo. 2002), we held that the defendant’s belief that he had
been granted an extension of time in which to file an answer did not constitute mistake,
inadvertence, or excusable neglect entitling him to an order setting aside default
judgment. We said it was not reasonable for the defendant to assume that he had an open
extension of time in which to file an answer based solely upon a phone conversation with
no verbal or written confirmation from the plaintiff and in the face of the explicit
requirements of the Wyoming Rules of Civil Procedure. “The concept of time limitations
for filing pleadings with the court is a fairly basic one of legal practice. [The
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defendant]’s reliance on his belief in an open-ended extension was simply not
reasonable.” Id.
[¶17] Similarly, this Court found “unreasonable MES’ expectation and belief that
Countrywide was representing its interest and filing an answer on its behalf” in
Countrywide Home Loans, Inc. v. First Nat. Bank of Steamboat Springs, N.A., 2006 WY
132, ¶ 27, 144 P.3d 1224, 1232 (Wyo. 2006). There, we affirmed the district court’s
denial of the appellant’s request to set aside the default judgment due to appellant’s simple
failure to answer the complaint. Other cases are also illustrative: Orosco v. Schabron, 9
P.3d 264, 267 (Wyo. 2000) (an affidavit of an attorney alleging an undiagnosed disorder
not sufficient to show incapacity for purposes of excusable neglect). Fluor Daniel
(NPOSR), Inc., v. Seward, 956 P.2d 1131, 1134-35 (Wyo. 1998), cert. denied, 525 U.S.
983, 119 S. Ct. 507, 142 L. Ed. 2d 402 (1998) (an error by an attorney’s staff member is not
excusable neglect); Chevron USA, Inc. v. Department of Revenue, 2007 WY 62, ¶ 9, 155
P.3d 1041, 1043 (attorney’s office mistake calendaring deadline not excusable neglect);
Platt v. Creighton, 2007 WY 18, ¶ 8, 150 P.3d 1194, 1199 (Wyo. 2007) (default upheld
where counsel failed to timely file a document where the court had not granted a formal
extension, although both parties agreed to the extension).
[¶18] Also in the context of cases involving entry of default and default judgments, we
have set out the analytical process to be applied by the district court in exercising its
discretion whether to set aside an entry of default:
The court first must consider whether the filed motion
articulates a reason for relief under Wyo. R. Civ. P. 60, and
that is a question of law to be reviewed for correctness. . . .
When an appropriate reason is set forth, the exercise of
discretion in granting or denying relief depends upon the facts
of the case. In making that decision, the trial court is to
consider whether the moving party established the articulated
grounds for relief and demonstrated a meritorious defense.
Even if these conclusions are in the affirmative, the trial court
still must determine whether the plaintiff will be prejudiced
and whether culpable conduct on the part of the defendant
resulted in the default. Our review of this sequence of
determinations by the trial court is limited to a determination
of whether in resolving these questions the trial court abused
its discretion. Carlson v. Carlson, 836 P.2d 297, 301 (Wyo.
1992); followed in Whitney, 892 P.2d at 794; Vanasse, 847
P.2d at 996.
Fluor Daniel (NPOSR), 956 P.2d 1131 at 1134.
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[¶19] In this case the district court concluded that RDG was not diligent or prudent in
relation to its registered agent and denied RDG’s motion to set aside the entry of default
and the default judgment. The district court explained in its findings:
The Court finds that [RDG] has not met its burden [of]
showing that their failure to respond to [the] complaint was
due to “excusable neglect.” The court notes that failing to pay
for the service of a company’s listed registered agent is not
something which a “reasonably prudent person under the
circumstances” would do. The Court finds that [RDG’s]
actions do not fall within the category of behaviors which may
be termed “excusable neglect.” Such action is pure neglect,
not excusable.
[¶20] The court went on to say about the three-factor test that the
Plaintiff would be prejudiced if the default was set aside.
Second, [RDG] is seeking to assert lack of notice as
meritorious defense in this case. The Court finds that [RDG]
has failed to meet the requisite burden for establishing the
existence of a meritorious defense. Lastly, the Court finds no
culpable conduct on behalf of [RDG], but since [RDG] has
failed to establish the two preceding factors of the test, the
burden of proof has not been met.
[¶21] Our review of the record shows that the complaint was served in person by a
process server to Sarah Garcia of WyomingRegisteredAgent.com on November 6, 2012.1
At the time of that service WyomingRegisteredAgent.com was the record agent for
service of process for RDG in Wyoming, although RDG had actually been
administratively dissolved as an authorized foreign limited liability company since March
14, 2009. Similarly, RDG had allowed its Nevada limited liability company registration
to expire and administratively dissolved the company on July 31, 2011. RDG had
admittedly negligently forfeited all of its rights and privileges to conduct any business in
Wyoming effective March 14, 2009 under Wyo. Stat. Ann. § 17-29-705(a)-(d)
(LexisNexis 2010 Supp.).
[¶22] Conveniently, under Wyo. Stat. Ann. § 17-29-705(c)(iii)(C) (LexisNexis 2013), as
a now totally defunct Wyoming entity, RDG could not be served with the Trust’s
complaint and summons by mail to the Wyoming Secretary of State with the Secretary
acting as the agent for process. In fact, the only record address for RDG in the fall of
1
Originally, Garcia testified in an affidavit that she had no record of the complaint or summons being
served on RDG.
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2012 was the address for RDG’s last record agent for service of process shown in the
Wyoming Secretary of State’s records. See Wyo. Stat. Ann. § 17-16-1531(e)
(LexisNexis 2013) – “[r]evocation of a foreign corporation’s certificate of authority does
not terminate the authority of the registered agent of the corporation.” RDG’s last
recorded designated commercial registered agent name and address was
WyomingRegisteredAgent.com located at 1621 Central Ave., Cheyenne, WY 82001.
[¶23] Further complicating things for RDG is evidence in the record that shows that at
the time of service RDG’s status as a current and paying client of
WyomingRegisteredAgent.com had been suspended because RDG had not paid
WyomingRegisteredAgent.com for any of its registered agent service since 2011. Sarah
Garcia of WyomingRegisteredAgent.com testified under oath that RDG’s account was in
default and that RDG mail was being returned to sender. She also testified that she gave
the documents served to her by the process server to Neil Thatcher, the mail clerk. It is
unclear what happened to the documents from that point. What is clear from the record is
that RDG’s account with WyomingRegisteredAgent.com was not current.
[¶24] As previously noted, in order to prevail on appeal, RDG must show “good cause”
to set aside the default judgment under Rule 60(b). Referring back to the three factors we
listed above, the district court’s conclusion supports its exercise of discretion in denying
RDG’s motion to set aside the judgment. First, as to prejudice to the plaintiff, we
conclude that the Trust would be prejudiced if the default was set aside. RDG filed its
motion to set aside the entry of default a full six months after its entry, and the Trust
relied upon the entry of default to its detriment. Furthermore, RDG does not meet its
burden of showing it has a meritorious defense in this instance. The record clearly
indicates that RDG lost all of the relevant federal oil and gas leases needed by the parties
to have any developable minerals. Also, RDG readily admits that beginning in mid-
March of 2009 RDG did not maintain the legal right under Wyoming law to conduct any
oil and gas business in Wyoming. Thus, RDG was unable as a matter of law to legally
carry out its obligations to the Trust under either of the two oil and gas development
agreements after March 14, 2009. Another default judgment against RDG was also
prohibitive to its further developing the two agreements in this case. To that end and,
finally, we conclude that RDG’s conduct was to blame leading up to the default. The
record indicates repeatedly that RDG mishandled its business from March 2009 through
2013 such that it failed to pay for its registered agent’s services or even communicate
with its registered agent during that time.
[¶25] We also conclude, as did the district court, that this is not an instance of excusable
neglect. Rather, this is just simply neglect. The failure to answer the complaint seems
due more to carelessness or a result of not attending to business. RDG failed to pay for
the services of its registered agent or appoint a new agent. Additionally, that RDG
allowed its LLC registration to expire ostensibly so it could not be served by having the
Wyoming Secretary of State serve as its agent for service of process seems intentional.
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Finally, RDG acknowledges but does not explain why a delay of six months occurred
after learning of the default and before filing its motion to set aside the entry and
judgment of default. As other courts have stated, failure to attend to business is not
excusable neglect. CMS Jonesboro Rehabilitation, Inc. v. Lamb, 306 Ark. 216, 812
S.W.2d 572 (1991).
CONCLUSION
[¶26] We affirm the district court’s order denying RDG’s motions to set aside the
default and default judgments.
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