Schmidt v. Jomac Inc.

No. 81-331
81-338
81-339
IN THE SUPREm COURT OF THE STATE OF MONTANA
GREGG SCHMIDT and HOLLY SCHMIDT,
d/b/a MANZANITA INTERNATIONAL,
Defendants and Appellants,
JOMAC, INC.,
Plaintiff and Respondent.
GREGG SCHMIDT and HOLLY SCHMIDT,
d/b/a MANZANITA INTERNATIONAL,
Defendants and Appellants,
CHAS. W. HOUSE & SONS,
Plaintiffs and Respondents.
GREG SCHMIDT and HOLLY SCHMIDT,
d/b/a MANZANITA INTERNATIONAL, INC.,
Defendants and Appellants,
WESTERN PAPER CO. ,
Plaintiff and Respondent.
Appeal from: District Court of the Fourth Judicial District,
In and for the County of Missoula
Honorable John S. Henson, Judse presidins, Nos. 8 1 - 3 3 8 , - 3 3 9
a .
H o n o r a b l e J a c k L. G r e e n , j u d g e p r e s i d i n g , No.81-331
Counsel of Record:
For Appellants:
McClelland Law Offices, Missoula, Montana
For Respondents:
Sverdrup & Buyske, Libby, Montana
Submitted on briefs: October 16, 1981
Mr. Justice Gene B. Daly delivered the Opinion of the Court.
This is an appeal from denials to set aside default
judgments entered in the District Court of the Fourth
Judicial District of the State of Montana, in and for the
County of Missoula.
Appellants, Gregg and Holly Schmidt, were sued by
each of the three respondents for monetary debts allegedly
owed. The Schmidts were sued with Manzanita Corporation, as
defendants in each suit, with a "d/b/aw signification in
Cause Nos. 81-331 and 81-338, and sued separately in Cause
No. 81-339. Both Gregg and Holly Schmidt were served
individually, and no allegations were made in the complaint
that the Schmidts personally guaranteed any of the debts of
the Manzanita Corporation. At the time of the commencement
of the suits, Gregg and Holly Schmidt were officers of
Manzanita Corporation.
The Western Paper Company suit was commenced June 18,
1980, and service was made on Holly Schmidt June 25, 1980,
on Gregg Schmidt July 8, 1980, and on Manzanita's office
manager June 24, 1980. The Chas. W. House & Sons suit was
commenced July 7, 1980, and the Schmidts were served July 8,
1980. The Jomac, Inc., suit was commenced on September 3,
1980, and the Schmidts were served September 9, 1980.
The Schmidts and Manzanita Corporation were repre-
sented by the same counsel. Counsel admits that he was
immediately made aware of the actions brought against the
Schmidts and Manzanita Corporation when the Schmidts came to
him for advice concerning the summons. It was determined by
counsel for the Schmidts that no answer or appearance was
necessary because the automatic stay provisions of the
Bankruptcy Code operated as a bar to all three suits.
Manzanita Corporation filed for bankruptcy on or about
September 11, 1980.
Default judgments were entered against Gregg and
Holly Schmidt on October 14, 1980. At that time, no
appearance was made by counsel, in any of the three actions,
for the Schmidts or for Manzanita Corporation. Execution
was issued against the Schmidts' bank account in May 1981.
It was not until May 28, 1981, that counsel for the Schmidts
and Manzanita Corporation contacted counsel for the
respondents and requested that the default judgments be set
aside.
On June 18, 1981, the Honorable Jack L. Green issued
an order in the Jomac case dismissing the motion to set
aside the default judgment and vacating the stay of execu-
tion. Then, on July 14, 1981, the Honorable John S. Henson
ruled on the motions made in the Western Paper and Chas. W.
House & Sons suits. Judge Henson also denied the Schmidts'
motions to set aside the default judgments and vacated the
stays of execution.
Notice of appeal was filed on June 30, 1981, in the
Jomac case, and on July 16, 1981, in the Western Paper and
Chas. W. House & Sons cases. The three cases have been
consolidated for purposes of appeal.
The issue presented on appeal is whether the trial
court abused its discretion when it refused to set aside the
default judgments.
The appellants contend that the District Court erred
when it denied their motions to set aside the default judg-
ments. Appellants argue that their motion should have been
granted pursuant to Rule 60(b)(l) and (6), M.R.Civ.P., which
reads:
"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: (1)
mistake, inadvertence, surprise, or excusable
ne lect; . . .
-- g ------------------ operation rofa s o n
( 6 ) a n y-------------
other e
justifying relief from the the
judgment. The motion shall be made within a
reasonable time, and for reasons (I), (2),
and (3) when a defendant has been personally
served, whether in lieu of publication or
not, not more than sixty days after the
judgment, order or proceeding was entered or
taken . . ."
The interpretation of the rule and the cases cited by the
appellants do not accurately reflect the state of the law.
Under the facts of the present case, Rule 60(b)(l)
does not provide the basis for relief. In Olson v. Olson
(1977), 175 Mont. 444, 574 P.2d 1004, this Court held:
"Montana law provides that a party, by
motion, may seek relief from a judgment by
having it set aside. A judgment can be set
aside because of excusable neglect on the
part of the party seeking relief. Rule
60(b) (1), M.R.Civ.P. However, Rule 60 (b),
M.R.Civ.P., provides that when the party
seeking relief was personally served, the
motion for relief on grounds of excusable
neglect must be made within sixty days of
entry of the judgment." 574 P.2d at 1006.
Here, appellants did not make motions to set aside
the default judgments until 231 days after entry of the
judgments. This fact precludes them from utilizing Rule
6O(b)(l), M.R.Civ.P., as grounds for relief.
Also, appellants failed to present facts to support
their contention that there was mistake, inadvertance,
surprise or excusable neglect as defined by Rule 6O(b)(l),
M.R.Civ.P. The contention that counsel dj.d not file an
answer because he mistakenly relied on the automatic stay
provision of the Bankruptcy Code is insufficient under the
law. In Uffleman v. Labbit (1968), 152 Mont. 238, 448 P.2d
690, this Court held that, " [tlhe defendant made a mistake
of law, not a mistake of fact. A mistake of law is not such
a 'mistake' under the provisions of Rule 60 (b)(1),
M.R.Civ.P., as will support vacating a default judgment.
Rieckhoff v. Woodhull, 106 Mont. 22, 75 P.2d 56." 448 P.2d
at 693.
Next, appellants contend that they should be granted
relief because they received no notice of the default judg-
ments and the circumstances of this case are such that re-
lief should be granted pursuant to Rule 60(b)(6), M.R.Civ.P.
These contentions are also not supported by the law and
cannot provide the basis for relief. According to Rules
55(a) and 77(d), M.R.Civ.P., no notice of entry of a default
judgment need be sent to the defendant by the clerk of the
district court. See, Johnson v. Matelich (1973), 163 Mont.
329, 517 P.2d 731, 733. Further, according to the greatest
weight of authority, Rule 60(b)(6) does not provide a
"reason justifying relief from the operation of the judg-
ment." 7 Moore's Federal Practice ql60.27(1); Wright and
Miller, Federal Practice and Procedure, Civil S2857.
Appellants cite Klapprott v. United States (1949),
335 U.S. 601, 69 S. Ct. 384, 93 L. Ed. 266, as authority for
the application of Rule 60(b)(6) to the circumstances
presented here. However, an analysis of the various
authorities that have reviewed Klapprott and Rule 60 (b)(6)
indicates that Klapprott is an example of Rule 60(b) (6)
taken to the extreme. Wright and Miller, Federal Practice
and Procedure, Civil SS2857, 2864. Klapprott dealt with a
default judgment setting aside an order granting citizenship
to a German sympathizer during the Second World War. The
facts of Klapprott are unique and differ to such a degree
from those presented here that the case cannot possibly
provide the authority for appellants' position.
Final-ly, in 7 Moore's Federal Practice, 860.27(1) at
351-352, there is a discussion of Rule 60(b)(6) stating:
"The motion [60(b)(6)] must be made within a
reasonable time. A question of power to
grant the motion is one of law. If however,
there is power, the grant or denial of the
motion is addressed to the sound discretion
of the trial court guided by accepted legal
principles in light of all the relevant
circumstances, and the trial court's exercise
of discretion will not be disturbed on appeal
except for abuse." (Footnotes omitted.)
Here, the District Court determined that the motions
to set aside the default judgments (made some 231 days after
the judgments were entered) were not made within a reason-
able time. We find that by doing so, the court did not
abuse its discretion.
Appellants argue that the District Court should have
granted the motions to set aside the default judgments
because opposing counsel knew or should have known that
Manzanita Corporation was going to file for bankruptcy.
Appellants argue that professional courtesy and the Montana
Rules of Civil Procedure required opposing counsel to notify
them of the actions being taken. They contend that this
Court should not allow this type of behavior for it would be
detrimental to the entire court system.
First, there was no finding by the District Court to
support the appellants' contention that counsel for respon-
dents knew or should have known about the impending bank-
ruptcy. Under the facts as they have been presented, this
contention is, at best, irrelevant. Second, the Montana
Rules of Civil Procedure do not require that opposing
counsel keep each other abreast of all actions t a k e n on
behalf of t h e i r c l i e n t s . Counsel f o r a p p e l l a n t s a d m i t s he
was aware of the s u i t s but chose to ignore the summons.
T h i s C o u r t i n J o h n s o n v . M a t e l i c h ( 1 9 7 3 ) , 163 Mont. 329, 517
P.2d 731, when d i s c u s s i n g a s i m i l a r c o n t e n t i o n , s t a t e d :
" D e f e n d a n t h a s made no showing o f why h e
f a i l e d t o f i l e a n answer w i t h i n t h e time
g r a n t e d by t h e d i s t r i c t c o u r t . D e f e n d a n t now
a s s e r t s t h a t he w i l l be p r e j u d i c e d b e c a u s e h e
h a s a good d e f e n s e t o t h e c l a i m s and now w i l l
be unable t o a s s e r t t h e d e f e n s e . If
d e f e n d a n t i s i n a n y way p r e j u d i c e d , t h e
r e c o r d c l e a r l y shows t h a t i t i s by h i s own
f a i l u r e and d i s r e g a r d t o a s s e r t h i s r i g h t s
when a v a i l a b l e t o h i m . " 517 P.2d a t 734.
A p p e l l a n t s h a v e n o t shown t h a t t h e t r i a l c o u r t a b u s e d
i t s d i s c r e t i o n . A m a n i f e s t a b u s e o f d i s c r e t i o n m u s t b e shown
before this Court w i l l interfere with the trial court's
discretion on a motion to set aside a default judgment.
P u r i n g t o n v . Sound West ( 1 9 7 7 ) , 1 7 3 Mont. 1 0 6 , 566 P.2d 795;
Keller v. Hanson (1971), 1 5 7 Mont. 307, 485 P.2d 705;
Johnson v. Matelich, s u p r a .
The f i n a l c o n t e n t i o n p r e s e n t e d by a p p e l l a n t s i s t h a t
t h e a u t o m a t i c s t a y p r o v i s i o n o f t h e B a n k r u p t c y Code d e p r i v e d
t h e D i s t r i c t Court of t h e j u r i s d i c t i o n t o e n t e r t h e d e f a u l t
judgments.
T h i s c o n t e n t i o n i s n o t s u p p o r t e d by t h e f a c t s o r t h e
law. Respondents f i l e d t h e i r claims a g a i n s t a p p e l l a n t s a s
individuals. A p p e l l a n t s f a i l e d t o answer w i t h i n t h e r e q u i -
s i t e t w e n t y d a y s a f t e r t h e s e r v i c e o f summons. Rule 12( a ) ,
M.R.Civ.P. As individuals, t h e y had t h e r e s p o n s i b i l i t y t o
answer t h e summons. They c a n n o t now h i d e b e h i n d t h e a u t o -
m a t i c s t a y p r o v i s i o n of t h e B a n k r u p t c y Code a s a p o s s i b l e
defense t o the action. Further, t h e motions t o set a s i d e
t h e d e f a u l t judgments on t h e a u t o m a t i c s t a y p r o v i s i o n o f t h e
B a n k r u p t c y Code a r e t h e o n l y p l e a d i n g s b e f o r e t h e D i s t r i c t
Court; no other possible defenses were asserted. If a
defense existed, appellants should have answered with it
d u r i n g t h e a p p r o p r i a t e time. The f a i l u r e t o d o s o r e s u l t e d
in default judgments that were properly entered. It is
d i f f i c u l t t o make t h e p o i n t c l e a r e r . Appellants, no m a t t e r
what the claim made against them, had a legal duty to
respond.
Finally, the automatic stay provision in the
B a n k r u p t c y Code, S e c t i o n 3 6 2 , a p p l i e s t o t h e d e b t o r i n bank-
ruptcy. I t does n o t apply t o an i n d i v i d u a l n o t i n bankruptcy
or t o a codebtor not i n bankruptcy. I n Re Van S h o p , I n c .
( 1 9 8 0 ) , 8 B.R. 73.
The judgment o f t h e D i s t r i c t C o u r t i s a f f i r m e d .
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