NO. 84-141
IN THE SUPREME COURT OF THE STATE OF MONTANA
1984
MERLIN L. LORDS and JUDY LORDS,
Plaintiffs and Respondents,
JOSEPHINE J. NEWMAN, W.D. WEBB
and IDA MAY WEBB,
Defendants and Appellants.
APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flahtead,
The Honorable Michael Keedy, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Murray, Kaufman, Vidal & Gordon, Daniel W. Hileman,
Kalispell , Montana
For Respondents:
Brian J. Smith, Polson, Montana
Submitted on Briefs: June 28, 1984
Decided: September 19, 1984
Filed: L ;1 !984
Clerk
Mr. Chief Justice Frank I. Haswell. delivered the Opinion of
the Court.
The defendants appeal from a default judgment entered
by the Flathead County District Court.
Appellant, Josephine Newman, purchased the San Rose
Motel. near Kalispell, Montana, from the plaintiffs in April
1982. Part of the purchase price was a $10,000 promissory
note executed by Newman and her parents, W. D. Webb and Ida
May Webb. Newman made one monthly payment on the note. When
the second payment came due, she deducted the cost of repair-
ing certain items at the motel and sent a check for the
difference to the sellers. The Lords rejected the payment,
and the present action for collection was filed in Lake
County June 15, 1983.
W. D. Webb was served with a summons and complaint on
July 15, 1983. Ida Webb and Newman were never served.
Newman did learn of her father's service a.nd brought his copy
of the complaint to Lee Simmons, an attorney she had previ-
ously consulted concerning the collection dispute.
At her meeting with Simmons, Newman made it clear that
neither she nor her mother had been served with process.
Newman also did not authorize Simmons to represent her in the
matter. Her request was that Simmons take care of the matter
for her father.
Despite the meeting with Newman, Lee Simmons made a
general appearance on behalf of all! three defendants on
August 5, 1983, when he filed motions to dismiss and change
venue. This was the first and final act taken by Simmons in
the case. Unknown to the defendants, Simmons ceased practic-
i.ng law in August 1983 and essentially disappeared from
sight. Opposing counsel consented to Simmons' motion to
change venue to Flathead County. As Simmons could not be
located, the plaintiffs paid the defendants' filing fee to
effect the change of venue. Although the action was trans-
ferred to Flathead County, the default of Ida Webb was en-
tered in Lake County October 4, 1983. This default was later
set aside on the parties' stipulation.
Proceeding in Flathead County, the plaintiffs filed a
notice of intent to take default on November 30, 1983. This
notice was mailed to Simmons without response. The defendant
Newman also attempted to contact Simmons to check on the
progress of the case. The defendants were unaware that the
plaintiffs were seeking default. The clerk of the court
entered default against Newrnan and W. D. Webb on December 6,
1983.
The defendants first learned that Simmons had entered
an appearance on their behalf when a title insurance report
indicated that a default had been entered against them. On
December 20, 1983, defendants retained new counsel and filed
a motion to set aside the entry of default. This motion was
heard on January 19, 1984, and on January 24, 1984, the court
denied the motion. Judgment was entered February 2, 1984,
and the court certified the judgment as a final judgment
under Rule 54(b), M.R.Civ.P., for purposes of appeal.
A motion to amend the judgment was made by defendants'
counsel on February 15, 1984. The court at the January
hearing expressed a reluctance to set aside the default
because this action might prejudice a future malpractice
action against Simmons. The motion to amend was based on the
defendants ' dj scovery that Simmons carried no malpractice
insurance, the potential claim was not covered by the client
security fund and Simmons had no property from which to
sa.tisfy a judgment. The District Court failed to rule upon
the motion, and it was deemed denied on March 9, 1.984. On
March 16, 1984, defenda.nts filed their notice of appeal.
The primary issue raised by appellants is whether the
District Court erred in denying the moti.on to set aside the
entry of default.
Standard of Review
7
Of first importance is determining what standard of
review should be applied in this case. The task is compli-
cated bv the fact that the parties have cited recent deci-
sions of this Court in which diametricall-y opposed standards
were applied in similar default situations.
The appellants assert that "no great abuse" of discre-
tion by the trial court need be found before a decision can
be reversed. Language from our decisions jn Kootenai Corp.
.
v. Dayton (1979), 184 Mont. 19, 601 P.2d 47, and Little Horn
State Bank v. Real Bird (1979), 183 Mont. 208, 598 P.2d 1109,
is cited in support of their proposition.
The respondents claim that "manifest abuse" must be
shown before the action of the trial court can be disturbed.
They cite our decisions of Schmidt v. Jomac, Inc. (Mont.
1982), 639 P.2d 517, 39 St.Rep. 130, and Purington v. Sound
West (1977), 1.73 Mont. 106, 566 P.2d 795, and language there-
in in support of their "manifest abuse" standard.
Examining the four above-cited cases and their underly-
ing precedent, we discern that the apparent confusion over
the proper standard of review is not solely a contemporary
phenomenon. The standard has been variously described over
the years. However, the sometimes contradictory statements
in the case law may be reconciled so that a coherent approach
emerges for the review of default judgments.
An underlying concern to any review of default is that
every litigated case should be tried on the merits and that
judgments by default are not favored. This principle has
been enunciated in practically all of our decisions address-
ing the issue and is the cornerstone of appellate review of
default.
A second principle that constantly appears in our case
law is that trial courts are vested with a certain amount of
discretion when they are considering a motion to set aside a
default. It has been stated that these matters are within
the "sound discretion" of the trial court.
Two harmonious standards of review have emerged from
this Court's attempt to observe the guiding principles of
review on motions to set aside a default. Whether one or the
other standard of review is used depends on what action the
trial court took with the motion.
The first standard properly arises in instances when a
trial court has granted the motion to vacate the default and
opened up the action for trial on the merits. In these
circumstances, the public policy considerations of letting
the parties have their day in court and respecting the trial
court's sound discretion combine synergistically to ju-stify a
strict standard of review: the action of the trial court will
only be set aside upon a showing of manifest abuse. Deci-
sions in our case law representative of this approach are
Kosonen v. Waara (1930), 87 Mont. 24, 285 P. 668, and Eder v.
Rereolos (1922), 63 Mont. 363, 207 P. 471. An alternative
manner of articulating this strict standard has been that an
order setting aside default will be reversed only in
exceptional cases. McClurg v. Flathead Cty. Com'rs (Mont.
1980), 610 P.2d 1153, 37 St-Rep. 801; see also, Kootenai,
supra; Holen v. Phelps (1957), 131 Mont. 146, 308 P.2d 624.
The second standard of review arises where a trial
court has considered but denied a motion to set aside the
default. In these instances the reviewing court weighs the
conflicting concerns of respecting the trial court's sound
discretion while recognizing the policy favoring trial on the
merits. The resulting standard of review is that no great
abuse of discretion need be shown to warrant reversal-. Cases
representative of this standard are Strnod v. Abadie (1962),
141 Mont. 224, 376 P.2d 730; Cure v. Southwick (1960), 137
Mont. 1, 349 P.2d 575; Waggoner v. Glacier Colony of
Hutterites (1953), 127 Mont. 140, 258 P.2d 1162; Reynolds v.
Gladys Eelle Oil Co. (1926), 75 Mont. 332, 243 P. 576; and
Brothers v. Brothers (1924), 71 Mont. 378, 230 P. 60. An
al-ternative expression of this "no great abuse" standard is
that only "slight abuse" is sufficient to reverse an order
refusing to set aside a default. See, Madson v. Petrie
Tractor & Equipment Co. (1938), 106 Mont. 382, 77 P.2d 1038.
Finally there are cases that recognize both standards
of review and simply state that a stronger showing of abuse
need be made to warrant reversal where a trial court has
opened a default than where it has refused to do so. See for
example, Beadle v. Harrison (1920), 58 Mont. 606, 194 P.2d
134. Other jurisdictions have examined results and noted
that an appellate court is more likely to affirm a lower
court ruling setting aside a default judgment than affirm a
refusal to do so. Franklin v. Bartsas Realty, Inc. (1979),
95 Nev. 559, 598 P.2d 1147; Paulsen v. Continental Porsche
Audi, Inc. (1980), 49 0r.App. 793, 620 P.2d 1384; Griggs v.
Averbeck Rlty., Inc. (1979), 92 Wash.2d 576, 599 ~ . 2 d1289.
One treatise has succinctly stated this observation by
noting:
"An appellate court, owing to the remedi-
al character of the statutes and the
policy of applying them liberally to
permit an opportunity to present a sub-
stantial defense where that right would
otherwise be lost, listens somewhat more
readily to an appeal from an order deny-
ing relief than to one granting relief.
While it will usually sustain the action
of the court below, whether for or
against the motion--even though upon the
same state of facts it wou1.d have sus-
tained an opposite conclusion--it is much
more disposed to affirm an order when the
result is to compel a trial upon the
merits than it i.s when the judgment has
been allowed to stand and it appears that
a substantial defense could be made.
This explains what might otherwise seem
to be a conflict in some of the deci-
sions." 1 Freeman on Judgments (5th ed.),
S 291 at 579.
Presently there does appear to be a conflict in some of
our decisions. The apparent conflicts have stemmed from the
inadvertent paraphrasing of the two standards of review
without regard to whether the trial court qranted or denied
the motion. For example, in Schmidt, supra, the majority
simply noted:
". . . A manifest abuse of discretion
must be shown before this Court will
interfere with the trial. court's discre-
tion on a motion to set aside a default
judgment. Purington v. Sound West
(1977), 173 Mont. 106, 566 P.2d 795;
Keller v. Ha.nson (1971), 157 Mont. 307,
485 P.2d. 705; Johnson v. Matelich, su-
pra." 639 P.2d at 520.
In Schmidt, and the cited cases with the exception of Keller,
the Supreme Court was not reviewing an action where a trial
court had granted a motion to set aside a default.
As 0u.r discussion has ind-icated, there is no one set
standard of review to be applied. The degree of appellate
scrutiny depends on whether the trial court set aside the
default or refused to do so. To the extent that Schmidt,
Purington, Keller, Johnson and other deqisions indicate that
the "manifest abuse" standard is to be applied in all cases,
these decisions must be clarified. Manifest abuse need only
be shown where the trial court has set aside a defaul-t judg-
ment and the appellant requests that the default be
reinstated.
In a case as the present one, where the trial court has
refused to set aside the default, the proper standard of
review is that no great abuse of discretion need be shown to
warrant reversal. Reaching this conclusion, we turn to the
merits of the appellants' arguments. It is clear that the
issue of abuse of discretion must be decided on a
case-by-case basis. Kootenai, supra; Brothers, supra.
Yeglect - Grounds For Setting Aside Default
As
Appellants argue that the default should be set a.sid.e
because Newman was not properly served. with process and the
attorney Simmons neglected his duties. Defective service of
process in this case is a subsidiary issue to the alleged
neglect. Due to the nature of our decision, the subissue
need not he reached. Simmons made a general appearance on
behalf of all the appellants and the main thrust of their
argument is the neglect of the case from that day forward.
Appellants technically are appealing both the refusal
of the trial court to set aside the entry of default made
December 6, 1983, and the default judgment filed February 2,
1984. Rule 55(c), M.R.Civ.P., states in relevant part:
"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., provides:
"On motion and upon such terms as are
just, the court may relieve a party or
his legal representative from a final
iudqment, order, or proceeding for the
following reasons:
" (1) Mistake, inadvertence, surprise, or
excusable neglect ..
I
'.
Thus, the question before us is whether the District Court
erred when it found that the neglect of Simmons was not good
cause or excusable neglect for setting aside the default.
The general rule followed in Montana and many other
jurisdictions is that the neglect of an attorney is attribut-
able to the client. The attorney's neglect is imputed to the
client and is insufficient by itself to set aside a default.
First State Bank v. Larsen (1925) 72 Monte 4001 233 960-
Within our case law, however, there are numerous in-
stances where an attorney's neglect has been excused upon the
proper showing. See for example, Worstell v. Devine ( 1 9 5 9 ) ,
Mont. Reynolds, supra; Eder, supra.
Worstell, this Court thoroughly reviewed neglect cases and
offered the following explanation for the exceptions:
"This court has been hesitant to impute
the neglect of an attorney to his client;
and has been loathe to permit this ne-
glect to bar a hearing on the merits.
Whether or not the varying shades of
excusable neglect previously remarked on
can be distinguished, we choose to think
that where reasonable minds might differ
in their conclusions of excusable ne-
glect, the doubt should be resolved in
favor of a trial on the merits." 335
P.2d at 307.
In the case at bar, Simmons' actions do not constitute
mere bungling of his duties or ineffective representation.
Simmons totally abandoned his cl-ients a.nd disappeared from
sight. To add insult to injury, before disappearing, Simmons
made a general appearance on behalf of the clients who had
neither been served with process nor authorized him to so
act.
Under these circumstances we find it unconscionable to
apply the general rule charging the client with the attor-
ney's neglect. Newman in her testimony ind.icates that rea-
sonable attempts were made to check on the progress of the
case. Where an a.ttorneyls failure to represent a client
constitutes actual misconduct, the client should he granted
relief from default.
Our reasoning here is in tune with several other juris-
dictions that have developed. an exception to the general rule
imputing neglect. For example, Nevada and California both
recognize the exception. Orange Empire National Bank v. Kirk
(1968), 259 Cal.App.2d 347, 66 Cal.Rptr. 240; Daley v. County
of Butte (1964), 227 Cal.App.2d 380, 38 Cal.Rptr. 693;
Staschel v. Weaver Bros., Ltd. (1982), - Nev. -, 655 P.2d
518. California has narrowed its exception by requiring a
showing of positive misconduct by which the client has been
effectively and unknowingly deprived of representation.
Carroll v. Abbot Laboratories (1982), 32 Cal.3d 892, 187
Cal.Rptr. 592, 654 P.2d 775. Nevada recognizes actual mis-
conduct by the attorney as grounds for granting a client's
motion to vacate default.
Examining the factual circumstances of this case we
hold that the total abandonment of the clients' interests by
a.ttorney Simmons constituted good cause for setting aside the
entry of default by the District Court on December 6, 1983.
The record indicates that the appellants acted promptly by
filing their motion to set aside the default fourteen days
later on December 20, 1 9 8 3 . The record also discl-oses that
the defendants may have had a meritorious defense to the
collection action; certain equipment at the motel that was
represented as being in good condition by the sellers was
alleged by the defendants to be in a state of disrepair.
Finally, the respondents have failed to demonstrate how the
setting aside of this default would prejudice their cause of
action.
The District Court judge in this case was motivated in
part by his fear that granting the motion to vacate the
default would compromise a future malpractice action against
the real culprit in the controversy--the attorney Simmons.
While such concern is laudable, the adequacy of a malpractice
remedy in this situation is questionable. Even assuming the
clients would prevail in such an action, Simmons' lack of
malpractice insurance and personal assets would make the
victory a decidedly hollow one.
Summarizing our analysis, we conclude that the trial
court abused its discretion by failing to set aside a default
in a situation where the defendants were completely abandoned
by their attorney, preceded with diligence to rectify the
court's action and alleged a potential defense to the action.
The litigants in this case were blameless and should not be
penalized for misconduct attributable to a lawyer.
The default and default judgment are vacated, and the
case remanded to the District Court for further proceedings.
We concur: