Empire Lath Plaster Inc. v. Ame

No. 92-090
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993
EMPIRE LATH & PLASTER, INC.,
Plaintiff and Respondent,
v.
AMERICAN CASUALTY COMPANY O F
READING, PENNSYLVANIA,
Defendant and Appellant.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable Russell K. Fillner, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Richard J. Andriolo, Berg, L i l l y ,
Andriolo & Tollefsen, Bozeman, Montana
For Respondent:
P. Bruce Harper, Attorney at Law,
~illings, Montana
Submitted on Briefs: May 28, 1992
Decided: February 11, 1993
Filed:
Justice Terry N. Trieweiler delivered the opinion of the Court.
Defendant American Casualty Company of Reading, Pennsylvania
(American Casualty), appeals from a default judgment of $58,049.40,
entered in favor of Empire Lath & Plaster, Inc, ( ~ m p i r e ) on
November 6, 1991, in the Thirteenth Judicial District Court,
Yellowstone County. ~mericanCasualty's subsequent motion to set
aside the judgment was deemed denied pursuant to Rule 60(c),
M.R.Civ.P., when the ~istrictCourt failed to rule on the motion
within 45 days.
We affirm.
The sole issue for our consideration is whether the District
Court abused its discretion when it did not grant American
Casualtylsmotion to set aside the default judgment.
This litigation arises out of a construction contract
associated with the building of the Billings Parking Garage and
City Hall Expansion Project. In April 1990, the City of Billings
awarded the general contract for the construction project to C & D
Contractors, Inc. (CD), and CD thereafter subcontracted a portion
of the project to Empire. In connection with the general contract,
a bond in excess of $3 million was executed by American Casualty to
guarantee payment to subcontractors for labor, material, and
equipment supplied during the construction project.
~mpirecompleted its portion of the work on April 16, 1991,
and submitted its final billing statement to CD which reflected an
unpaid balance due Empire totalling $47,124.96. In addition to the
amount owed under the subcontract, Empire had performed a "change
for the project which had been authorized by CD and approved
orderat
by the project architect, at a cost of $1,200.00.
At the same time Empire submitted its final statement, CD sent
a letter to Empire confirming the outstanding balance due under the
contract, but asserting that ~mpire had failed to 'ldiligently
pursue its work in a timely manner. CD claimed this failure to
properly perform under the contract delayed the entire project and
resulted in significant additional costs to CD. No further facts
nor specifics were ever provided to ~mpire regard to the alleged
in
contract breach.
After computing the costs which it alleged were a result of
Empireas delay, CD determined it would withhold $31,576.00, and
tendered a check to Empire for $15,548.96. The check contained a
restrictive endorsement which provided that ~mpire'sendorsement
would acknowledge final and conclusive payment for all work
performed, and would release CD from any further liability under
the subcontract. Empire refused to execute the check due to the
restrictions, and insisted on either full payment, or payment of
the uncontested sum of $15,548.96, with an understanding that the
parties would attempt to resolve the dispute over the remaining
amount.
Empire received no payments from CD, and on July 2, 1991,
Empire submitted a notice to the city of Billings, CD, and American
Casualty (as the surety for the project), stating that it had a
claim of $47,124.96 against the bond for the work performed under
the subcontract, and also for the $1,200.00 incurred for the change
order. Empire received no response from either CD or ~merican
Casualty regarding the claim notice.
On August 14, 1991, ~mpirefiled a complaint in ~istrictCourt
against American Casualty in order to collect the outstanding
balance owed to Empire which was guaranteed by the bond. This
civil action was filed in Yellowstone County as required by
provisions contained in the bond; CD was not named as a defendant
in the case because the subcontract between CD and Empire required
venue in Lewis and Clark county. The summons and complaint were
served on American Casualtylslegal department on August 23, 1991.
The Claims Analyst for ~mericanCasualty immediately forwarded
the summons and complaint to CD, along with a letter tendering the
defense of the action to CD as was apparently standard practice.
Although American Casualty was in communication with CD on other
matters, Empire's pending lawsuit was never discussed, and CD
asserts that it had no knowledge of the action nor ever received
American Casualty's letter tendering the defense of the action to
CD.
The District Court, based on an affidavit from the supervising
architect of the construction project, found that Empire had fully
and competently performed the requirements of the subcontract in a
timely manner, and that there was no basis to withhold full payment
to Empire. The court concluded that Empire had complied with all
conditions required by the bond, and was, therefore, entitled to
recover from American Casualty under the bond. The court entered
a default judgment against American Casualty on November 6, 1991,
for $58,049.40, which represented the contract amount due Empire,
plus interest, the $1,200.00 incident to the change order, and
attorney fees and costs of $170.39.
The following day, American Casualty discovered that the
default judgment had been entered and that no appearance had been
made by CD on behalf of the surety. On November 14, 1991, American
Casualty moved to set aside the default judgment, filed its answer
to the complaint, and requested a trial on the merits. The
District Court did not rule on the motion within 45 days from the
time it was filed, and the motion was, therefore, deemed denied
pursuant to Rule 60(c), M.R.Civ.P. From this denial of the motion
to set aside the default judgment, American Casualty appeals.
The issue presented is whether the District Court abused its
discretion when it did not set aside the default judgment.
American Casualty argues that the court should have granted relief
from the judgment under Rule 55(c), M.R.Civ.P., which allows for
the setting aside of a default judgment:
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).
Rule 60(b), M.R.Civ.P., states in pertinent part:
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.
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. BoardofDirectors
Edelweks Ownersw Assn. v. Mclntosh (1991), 251 Mont. 144, 822 P.2d 1080.
In Lorhv.Newman (19841, 212 Mont. 359, 363, 688 P.2d 290, 293, we
emphasized two basic tenets to be considered in setting aside
default judgments: (1) every litigated case should be tried on its
merits and judgments by default are not favored; and (2) trial
courts have a certain amount of discretion when considering a
motion to set aside a default judgment. We have also clearly
stated that the burden of proof rests on the party seeking to set
aside the default judgment. Siewingv.PearsonCo+ (1987), 226 Mont.
458, 461, 736 P.2d 120, 122.
After considering these factors and applying the appropriate
standard of review to the present case, we conclude that the
District Court did not abuse its discretion when it failed to grant
American Casualtytsmotion.
American Casualty contends that the failure to file an answer
was excusable neglect, and it is, therefore, entitled to relief
from the judgment pursuant to Rule 6O(b), M.R.Civ.P. However, in
In re Manicrge of Castor (19911, 2 4 9 Mont. 495, 817 P.2d 665, we
emphasized that "mistake," inadvertence," and Itexcusableneglectw
generally require some justification for an error beyond mere
carelessness or ignorance of the law. Castor, 817 P.2d a t 667
(citing Lomas andNertIeton Co. v. Wieiey (7th C i r . 1989), 8 8 4 F.2d 965,
967). In this instance, we conclude that American Casualtyls
neglect was not justified and that the criteria of Rule 60(b) have
not been satisfied.
The bonding company asserts that it was standard practice to
have CD take over the defense of actions filed against American
Casualty. American Casualty then maintains that after notifying
CD, the claims analyst kept the complaint with other active files
because she was purportedly monitoring negotiations between Empire
and CD. This resulted in the normal calendaring procedure being
overlooked and, consequently, American Casualty did not check to
see that a timely response had been filed. Furthermore, CD claims
it never received the tender letter, and attributes this to the
fact that CD was moving its offices and reducing office personnel
at the time the letter was sent.
Based on Blume v Metropolitan Life Insurance Company (1990) , 242 Mont
. .
465, 791 P.2d 784, where this Court found the district court abused
its discretion when it refused to vacate a default judgment,
American Casualty suggests the neglect in this situation is also
inadvertent and excusable. In Blume, certified mail containing a
summons and complaint was delivered to the defendant company, but
was apparently lost before anyone in a position of authority saw
it. After reviewing the record in this case, however, we conclude
that the neglect demonstrated by both American Casualty and CD is
not comparable to the inadvertence we excused in Blume.
Unlike Blume, where the defendant company was unaware that the
plaintiff was seriously considering filing suit and had no reason
to suspect that a court appearance was necessary, neither American
Casualty nor CD can profess ignorance of Empire's intention to
pursue recovery under the bond. When Empire refused to execute the
check for $15,548.96 because acceptance of this check would have
released CD from further liability under the subcontract, CD was
fully aware that Empire was challenging the unilateral withholding
of payments. Empire then complied with the required notice
provisions prior to filing its complaint, thus giving both American
Casualty and CD written notice of its claim against the bond and
intent to seek recovery.
The record shows that American Casualty was put on notice that
Empire would assert its rights under the bond directly against the
bonding company a minimum of five times prior to the filing of the
complaint, and unlike the defendant in Blume, the appropriate
personnel did receive a copy of the summons and complaint. While
it may have been reasonable to assign CD the responsibility of
responding to Empire's complaint, American Casualty cannot justify
its failure to follow-up on the matter. This is particularly true
in light of the following statement made in the August 27, 1991
tender letter:
P l e a s e acknowledge your acceptance of this tender of
defense prior to the answer date and furnish the
undersigned with a copy of the answer.
As the only defendant named in the case, American Casualty had the
responsibility to follow-up on its own request and insure that CD
received and accepted the tender, and was preparing an appearance
on American Casualty's behalf.
The neglect demonstrated in this case was not like the
unintentional oversight in Blume, and is, therefore, not excusable.
In addition to finding excusable neglect, the judgment of a
district court can be set aside for "any other reason justifying
relief from the operation of the judgment. It Rule 60 (b)(6),
M.R.Civ.P. Generally, relief is afforded under this subsection
only in extraordinary situations when circumstances go beyond those
covered specifically in Rule 60(b) . C s o , 817 P.2d at 668; Fuller
atr
v. Quire (6th Cir. l990), 916 F.2d 358, 360. After reviewing the
record, we conclude that American Casualty has failed to establish
any other reason which would justify relief from the operation of
the default judgment.
We hold the District Court did not abuse its discretion when
it did not grant the motion to set aside the judgment entered
against American Casualty.
Af finned.
We concur: