No. 8 8 - 3 0 4
IN THE SUPREME COURT OF THE STATE OF MONTANA
ROBERT L. CRIRR and MARGARET V. CRIRR,
husband & wife; M. BRUCE WRIGHT and
SUSAN WRIGHT, husband & wife; and RON
HELLAND and JOAN HELLAND, husband and
wife, on behalf of all other stockholders
of Glasgow Publishing Compan~,a Montana
corporati.on,
Plaintiffs and Respondents,
-VS-
NATLOCK COMMUNICATIONS, INC., an Idaho
corporation; GLASGOW PUBLISHING COMPANY,
a Montana corp., COOSPAPERS, INC., an
Oregon corp.; IDAHO BANK & TRIJST COMPANY,
a banking corp.; and STEPHEN J. MATLOCK,
individuallv and as President of Matlock
Communications, Inc., and Glasqow Publishing
Company,
Defendants and Appellants.
APPEAL FROM: District Court of the Seventeenth Judicial District,
In and for the County of Valley,
The Honorable Nat Allen, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Jardine, Stephenson, Rlewett & Weaver; George N McCabe,
Great Falls, Montana
Gallagher, Archambeault & Knierim; Matthew W Knierim,
Glasqow, Montana
For Respondent:
Habedank, Cumming, Rest, Maltese & Savage; Peter
I-
cr Maltese, Sidney, Montana
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Submitted on Briefs: Nov. 17,
Decided: January 30, 1989
Mr. Justice R. C. McDonough delivered the Opinion of the
Court.
This appeal from the Seventeenth Judicial District, in
and for the County of Valley, concerns the District Court's
denial of a motion to set aside an entry of default under
Rule 55(c), M.R.Civ.P. The only issue is whether the lower
court abused its discretion in denying the motion. Fe
7
reverse.
The relevant facts are as follows: respondents Cribbs,
and Wrights, (Cribbs) agreed to sell their stock in Glasgow
Publishing Company, a corporation, to Matlock Communications,
Inc., owned by Stephen J. Matlock. Cribbs exchanged the
company' s stock for promissory notes and other consideration
from Matlock. The parties placed the stock i n escrow to
secure the debt owed on the notes.
Cribbs reqained control of the company when Matlock
Communications failed to make the required payments. Crihhs
then sued Matlack and Matlock Communications far money still
due under the sales agreement.
Cribbs joined appellant Idaho Bank and Trust Company
(I.B. & T.) because Matlock had secured a loan from I.R. €T.
i
with assets owned by Glasgow Publishing Company. Crihhs'
complaint contended that Matlock had no authority to encumher
the assets, and sought a judgment voiding the security
interest claimed by I.B. & T.
On December 22, 1986, Cribbs served summons and
complaint on I.B. & T. 's main downtown branch office in
Boise, Idaho. I.B. & T. failed to answer or appear within 30
days. On February 5, 1987, the clerk entered default against
I.B. & T. On March 6, 1987, before Cribbs had takkn any
final iudqment, I.R. & T. filed a motion to set aside the
default, a crossclaim, a counterclaim, and a third party
complaint.
I.B. & T. also submitted affidavits explaining their
failure to respond to Cribbs' complaint. An employee in I.B.
& T. 's branch of £ice swore that he delivered the papers to
another employee for transfer to the main I.B. & T. office
through the Rank's courier system. The other employee
remembered receiving the papers with instructions for their
delivery, but could not verify if she had channelled the
papers into the courier system. The summons and complaint
never arrived at the main office.
I.R. & T. discovered their failure to answer or appear
approximately one week after the clerk entered the default.
One month after the entry of default I.B. & T. filed its
motion, answer, crossclaim, counterclaim and third party
complaint.
I.B. &T. contends that the District Court abused its
discretion in refusing to set aside the entry of default
because I.B. & T. made the showing of good cause required by
Rule 55(c), M.R.Civ.P. Cribbs respond that Rule 55(c) 's good
cause should be equated with "excusable neglect" in Rule
60(b), M.R.Civ.P, and that I.B. & T. has failed to excuse its
late response. The parties also disagree on whether I.B. &
T.'s tardy response prejudiced Cribbs.
First, Cribbs mistakenly contend good cause under Rule
55(c), M.R.c~v.P., equates to excusable neglect under Rule
60(b), M.R.Civ.P. Rule 55(c), M.R.Civ.P., provides that:
For good cause shown the court may set side an
entry of default and, if a judgment by default has
been entered, may likewise set it aside in
accordance with Rule 60(b).
The majority view holds that:
the "good cause" standard for setting aside a
default entry is more flexible and lenient than the
Rule 60(b) standard for setting aside a default
judgment. 6 J. Moore, Moore's Federal Practice ¶
.
55.10[1] and [2] (2d ed. 1983) : . . The default
entry is simply an interlocu~orv order that in
itself determines no rights or remedies, whereas
the default judgment is a final judgment that
terminates the litigation and decides the dispute.
Hertz v. Berzanske (Alaska 1985), 704 P.2d 767, 770. We
agree that the good cause standard under Rule 55 (c),
M.R.Civ.P., should be applied more flexibly and leniently
than the excusable neglect standard under Rule 60(b),
M.R.Civ.P.
Second, we hold that I.R. & T. made a sufficient showing
of good cause in the lower court. To determine the existence
of good cause, courts should consider:
(1) whether the default was willful, (2) whether
the plaintiff would be prejudiced if the default
should be set aside, and (3) whether the defendant
has presented a meritorious defense to plaintiff's
claim. The court must also balance the interests
of the defendant in the adiudication of his defense
on the merits, against the interests of the public
and the court in the orderly and timely
administration of justice.
6 J. Moore, Moore's Federal Practice T 55.10[21, at 55-59 (?d
ed. 1988) , and see Sony Corp. v. Elm State Electronics, Inc.
(2nd Cir. 1986), 800 F.2d 317, 320 (in addition to three
factors above, courts may consider whether there was a good
faith mistake, whether a harsh or large judgment would
result, the strong preference for adjudication on the merits,
and resolution of douhts in favor of granting motion to set
aside).
I.R. & T. submitted affidavits that its failure to
respond resulted from clerical error. Facing similar facts,
one U.S. District Court agreed to set aside an entrv of
default stating:
The Court, of course, is not condoning the
filing of a late answer, yet it is reluctant to
enter a default judgment where, as here, there was
not wilful abuse of its process nor apparent
prejudice to the plaintiff.
Wallace v. De Werd (D. V.I. 1969), 47 F.R.D. 4, 5. Here
there is also a lack of willful abuse of the lower court's
process and a lack of apparent prejudice. Cribbs argue that
prejudice exists because reversal will further delay the
case. F e reject this contention.
7 Prejudice from delay
should be measured at the time the party moves to set aside
an entry of default.
Weighing the third factor in this case presents more
difficulty. Cribbs contend I.B. & T. has failed to show a
meritorious defense because Matlock could not have had
authority to encumber the assets of Glasgow Publishing
Company.
I.B. & T. contends that the documents creating the
security interest are regular on their face, and that Matlock
provided documentation demonstrating that he was authorized
to borrow for Glasgow Publishing Company as the Corporation's
sole director. I.B. & T. also contends that the security
agreement may be validated by the allegation that Glasgow
Publishing Company received a monetary benefit from loans
authorized by Matlock.
Cribbs have responded to these contentions by arguing
that Matlock never properly hecame sole director of the
corporation, and that none of the proceeds of the loans
benefited Glasgow Publishing Companv.
Cribbs have presented evidence supporting their
position. However, resolution of doubt in finding a
meritorious case should be resolved in favor of I.B. & T.
Meehan v. Snow (2nd Cir. 1981), 652 F.2d 274, 277. I.B. & T.
has alleged facts which, if proven, provide a defense.
Appellate courts reverse refusals to set aside entries
of default on a showing of slight abuse of discretion by the
lower court. 6 J. Moore, Moores Federal Practice 9 55.10[2],
at 55-59. Given the lack of willfulness, prejudice, and the
presence of factual allegations supporting a defense, we hold
that the District Court abused its discretion in denying the
motion. We reverse and remand for further proceedings.
We Concur:
Justices
Mr. Justice L . C. Gulhrandson, dissenting.
In my view, the appellant failed to present a
meritorious defense. Even a cursory examination by the
appellant of the documentation provided by Matlock, as the
purported sole director of the Glasgow Publishing Company,
would have revealed non-compliance with the requirements of
the pertinent Montana statutes, including S 35-1-413 and
5 35-1-808, MCA.
I would affirm the District Court's ordeq/