Falcon v. Faulkner

No. 95-083
IN THE SUPREME COURT OF THE STATE OF MONTANA

1995

DON FALCON and BERTA FALCON,
husband and wife, d/b/a
THE EL LEO PARTNERSHIP,

Plaintiff and Respondent,
v.

ALLEN E. FAULKNER, d/b/a,

FAULKNER QUARTER HORSES and

RON THOMAS as agent/employee of
FAULKNER QUARTER HORSES,

Defendant and Appe1lant.

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APPEAL FROM: District Court of the Eleventh Judicial District,

In and for the County of Flathead,
The Honorable Ted O. Lympus, Judge preSiding.

COUNSEL OF RECORD:
For Appellant:

Jeffrey‘ M. Murrayg Murray' Law Firm, Kalispell,
Montana

For Respondent:

Mark Stermitz, Kent P. SaXby, Warden, ChriStiansen,
JohnSon & Berg, KaliSpe1i, Montana

Submitted on BriefS: July 28, 1995

DeCid@d: September 29, 1995

C1erk

Filed:

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Justice William E. Hunt, Sr., delivered the Opinion of the Conrt.

Appellant Ron Thomas appeals the decision of the Eleventh
Judicial DistriCt Court, Flathead County, denying his motion to set
aside a default judgment. we affirm.

The following issues are raised on appeal:

l. Did_ the District Court err in failing to find that
respondent Falcon had committed fraud upon the court?

2. Did the District Court err in failing to find sufficient
"other reasons" existed to warrant setting aside the default
judgment?

FACTS

Respondent Don Falcon, a Montana resident, is a quarter horse
breeder and the owner of a show mare named "First El Leo."
Appellant Allen Faulkner, an Oklahoma resident, is also a quarter
horse breeder and the owner of a show stallion named "Impressive."
In the mid-l980's, Appellant Ron Thomas, an Iilinois resident,
bought from Faulkner a number of “breeding contracts," each of
which gave the owner of the contract the right to breed a mare to
Impressive.

In the early' spring' of l986, Thomas assigned. a breeding
contract to Falcon for $5,G0O. The parties dispute whether the
contract guaranteed the live birth. of a foal, but agree the
contract provided the owner would have the right to breed his mare
to Impressive again the following year should a live foal not
result from the first breeding. The parties also dispute how

payment on the contract was arranged. Falcon alleged he and Thomas

2

had agreed Thomas would receive $2,5OO up front and the balance
once First El Leo was pregnant. Thomas alleged he made it clear he
expected to be paid the entire amount in advance.

First Ei Leo was bred to Impressive in l986, but no pregnancy

resuitedn In l987, Falcon transported First El Leo back to

Oklahoma to attempt to breed her to Impressive again. On Thomas‘
orders, Faulkner refused to allow the breeding because Falcon had
not paid the breeding contract in full. Falcon refused to pay and
no second breeding took place. Falcon took First El Leo back to
Montana and successfully bred her to another stallion later that

year.

In late l987, Thomas filed suit against Falcon in Illinois for
breach of contract. This suit was subsequently dismissed by the
Illinois court for lack of personal jurisdiction over Falcon. In
January l988, Falcon filed suit in Montana against Faulkner and
Thomas for breach of contract, and Thomas was duly served with
process on the lawsuit. On_ the advice of his attorney; who
believed Montana lacked personal jurisdiction over him, Thomas
failed to answer the complaint or to appear in the suit.

Because Thomas failed to appear, his default was entered in
February l988. In January l989, Falcon requested and received a
default judgment against Thomas in the amount of $l31,0lO.80. In
l990, Falcon petitioned an Iliinois court for registration of the
default judgment. Thomas opposed the petition, arguing the Montana
court lacked personal jurisdiction over him and the judgment was

therefore void. The Illinois court found Thomas had the requisite

minimum contacts in Montana to establish personal jurisdiction, and

the default judgment was duly' registered in Illinois. This

decision was affirmed by the Illinois appellate court.

Falcon also filed_ a separate action. in Illinois alleging
Thomas had fraudulently conveyed certain real property to his sons
for the purpose of avoiding payment of the Montana judgment. The
Illinois court found the property had indeed been fraudulently

conveyed, and the property transfers were set aside. Thomas again

appealed, and the Illinois appellate court affirmed the judgment in

February l994.

In May l994, Thomas moved the Montana court to set aside the

default judgment. Thomas alleged that Falcon had committed fraud

upon the court and that other sound reasons existed to set the

default aside. The District Court refused to set aside the default

judgment, and Thomas appeals.
Rule 60(b), M.R.Civ.P., provides that a default judgment may
be set aside for the following reasons:

(l} mistake,
negleCt;

(2} newly discovered evidence which by due diligence
could not have been discovered in time to move for a new
trial under Rule 59(b};

(3) fraud (whether heretofore denominated intrinsic or
extrinsic), misrepresentation, or other misconduct of an
adverse party;

{4) the judgment is void;

{5) the judgment has been satisfied, released, or
discharged, or a prior judgment upon which it is based
has been reversed or otherwise vacated, or it is no
longer equitable that the judgment should have
prospective application; or

{6) any other reason justifying relief from the operation
of the judgment.

inadvertence, surprise, or excusable

Rule 60(b), M.R.Civ.P. However, Rule 60(b) also provides that a
motion made under subsections (1), (2), or (3) must be made within
60 days after the entry of judgment. Thomas' motion to set aside
the default judgment was made over five years after the default
judgment was entered against him. Any claim arising under
subsections (1), (2), or (3) is therefore time-barred. Since
Thomas does not allege the judgment is void or has been satisfied,
his motion arises from subsection (6)--other reasons exist which
justify setting the judgment aside. 1n addition, the residual
clause of Rule 60{b) allows a judgment to be set aside at any time
if a party has perpetrated a fraud upon the court, which Thomas
alleges Fa1con has done.
STANDARD Of` REVEEW

This Court will carefully scrutinize a district court‘s
refusal to set aside a default. Because of the sound policy
favoring trial on the merits, "no great abuse of discretion need be
shown to warrant reversal.“ Lords v. Newman (1984}, 212 Mont. 3S9,
364, 688 P.2d 290, 293 (citations omitted). If this Court finds
even a slight abuse of discretion, the district court will be
reversed and the default will be set aside. Lg;d§, 688 P.2d at
293. §ee al§Q In re Marriage of McDonald (l993), 261 Mont. 466,
469, 863 P.2d 401, 402; Blume v. Metropolitan Life Ins. Co. (1990},
242 Mont. 465, 467, 701 P.2d 7B4, 785. However, "the burden of
proof rests on the party seeking to set aside the default

judgment." Empire Lath & Plaster, Inc. v. American Casualty Co. of

Reading, Pennsylvania (1993), 256 Mont. 413, 416, 847 P.2d 276,
278.
lssue 1

Did the District Court err in failing to find that respondent
Falcon had committed fraud upon the court?

Thomas alleges Falcon intentionally misrepresented material
facts to the court. Specifically, Thomas contends Falcon
misrepresented that:

1) his mare failed to have a foal subsequent to the 1987
breeding season;

2) he fully performed all obligations under the contract; and

3) the value of the lost foal was $100,000.

Thomas contends that these alleged misrepresentations amount to a
fraud upon the court, and that the default decree should therefore
be set aside under the residual clause of Rule 60, M.R.Civ.P.

"The residual clause of Rule 60 by its terms sets forth three
separate avenues to obtain relief from judgment." Salway v. Arkava
(1985), 215 Mont. 135, 140, 695 P.2d 1302, 1305. These avenues are
extrinsic fraud, lack of personal notification, and fraud upon the
court. Brown v. Small (1992), 251 Mont. 414, 42G, 825 P.2d 12G9,
1213, citing Salway, supra. 1n this case, Thomas alleges Falcon
committed fraud upon the court.

Fraud upon the court should, we believe, embrace

only that species of fraud which does or attempts to

subvert the integrity of the court itself, or is fraud

perpetrated by officers of the court so that the judicial
machinery cannot perform in the usual manner in its
impartial task of adjudicating cases that are presented

for adjudication. Relief should be denied in the absence
of such conduct.

Salway, 695 P.2d at 1306 (citations omitted). See also wise v.

Nirider (1993), 261 Mont. 310, 862 P.2d l128. "Examples of fraud
upon the court include bribery, evidence fabrication, and improper
attempts to influence the court by counsel." §rQwn, 825 P.2d at
1213. Only "the most egregious conduct" will rise to the level of

fraud upon the court. Hi§§, 862 P.2d at 1132. “[I]t must be such
fraud as denied the adversary an opportunity to have a trial or to
fully present his side of the case" in order to "constitute grounds
for reopening the decree." Lance v. Lance (198l), 195 Mont. 176,
l79~8G, 635 P.2d 571, 574. Intrinsic fraud that is representations
or concealments made during the court proceedings, assuming they
are false or fraudulent, are nevertheless not grounds for reopening
a decree or judgment. Lang§, 635 P.2d at 574 (citations omitted).

Thomas alleges Falcon misrepresented certain facts to the
court, and those misrepresentations constituted fraud upon the
court. But what Thomas terms "misrepresentations“ were allegations
that would properly have been disputed at trial.

The question of whether First El Leo had a foal in the 1987

season has been settled. falcon admitted she did (by another

stallion), and claimed the allegation she had not was an error
brought to the trial court's attention. In any case, the award of
damages does not include any amount for a foal lost in 1987.
whether Falcon_ fully' performed his obligations under the
contract is relevant to the issue of breach of contract. Falcon
claimed he did; Thomas now claims he did not. The worth of the

foal that would have been born if a successful breeding had taken

place is relevant to the issue of damages. Falcon claimed it could
have been worth in excess of $100,000; Thomas now claims it would
have been worth much less.

In raising these issues, Thomas attempts to argue the merits
of the case itself. However, the proper place and time to argue
the merits of a case is at trial. Had Thomas appeared in the case
and a trial been held, he would have been afforded an opportunity
to rebut Falcon's testimony and offer his own evidence regarding
the contract and damages. If Thomas had somehow been denied his
right to appear at trial and contest the merits of the case, the
denial of that right might constitute fraud upon the court.
Salway, 695 P.2d at 1306. But, Thomas was not prevented from
appearing; he chose not to appear.

The record does not indicate, nor does Thomas allege, that
Falcon or his counsel engaged in the sort of egregious conduct that
would justify a finding of fraud upon the court. lt was not an
abuse of discretion for the District Court to refuse to grant
Thomas' motion on these grounds.

lssue 2

Did the District Court err in failing to find sufficient
"other reasons" existed to justify setting aside the default
judgment?

Rule 60(b)(6), M.R.Civ.P., provides that "[o]n motion and upon
such terms as are just, the court may relieve a party . . . from a
final judgment, order, or proceeding for . . . any other reason

justifying relief from the operation of the judgment." Thomas

alleges several "other reasons" why the default judgment should be

set aside.

Reiief is warranted. under subsection (6) of Rule 60(b),
M.R.Civ.P., "in extraordinary situations when circumstances go
beyond those covered by the first five subsections or when a party
in whose favor judgment was entered has acted improperly." In re
Marriage of Castor (l991), 249 Mont. 495, 500, 817 P.2d 665, 668.
"0ther reasons" sufficient to set aside a default judgment include
lack of subject matter jurisdiction (In re Marriage of Oltersdorf
(1992), 256 Mont. 96, 844 P.2d 778), unavoidable absence or
unavailability of counsel (Ring v. Hoselton {1982), 197 Mont. 414,
643 P.2d 1i65), or potential judicial bias (Schultz v. Hooks
(1994), 263 MOnt. 234, 867 P.2d lllO).

Thomas first alleges fraud between the parties on the same
grounds by which he alleges fraud upon the court. However, false
representations made by a party constitute intrinsic fraud and are
not reason enough to set aside a default judgment. Lang§, 635 P.2d
at 574. The intrinsic fraud_ Thomas alleges is addressed by
subsection (3) of Rule 60(b). A party is given 60 days in which to
file a motion under subsection (3); Thomas is therefore time-barred
from raising this issue.

Thomas next alleges the settlement offer made to him indicates
Falcon‘s damages were inflated. However, settlement offers are not
admissible to prove liability for or invalidity of a claim or its
amount. Rule 408, M.R.Evid. Furthermore, as stated above, the

question of damages is properly decided at trial. Since Thomas did

not appear in this action, the District Court awarded damages based
on the evidence Falcon presented. A party*s desire to
retroactively argue a factual issue in the case is not a reason
justifying the setting aside of a default.

Thomas also argues the judgment should be set aside because he
received no notice of Falcon‘s intent to enter the default. Rule
55(b), M.R.Civ.P,, requires a party who has appeared in an action
to be given at least three day's notice of intent to enter a
default. However, despite being duly served as a party to the
case, Thomas never appeared in the action. Since he never entered
an appearance, he was not entitled to specific notice of intent to
enter a default. Therefore, Falcon’s failure to notify him is not
a reason to set aside the default judgment. Lange, 635 P.2d at
575 .

Thomas last argues that the negligence of his attorney should
be reason enough to set aside the default judgment. Thomas'
failure to appear in the Montana action was due to the advice of
his lllinois attorney, who incorrectly believed Montana did not
have personal jurisdiction over Thomas.

Generally, mistake or neglect fall within subsection (1) of
Rule 60(b) and therefore must be alleged within 60 days of the
entry' of judgment. Further, “[t}he general rule followed in
Montana and many other jurisdictions is that the neglect of an
attorney is attributable to the client. The attorney*s neglect is
imputed to the client and is insufficient to set aside a default."

Lords, 688 P.2d at 295, citing First State Bank v. Larsen (1925),

10

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72 Mont. 400, 233 P. 960. We have found in the past, however,
that gross neglect of a diligent client's case may be enough to
warrant setting aa default judgment aside under subsection (6).
R`;ng, 643 P.2d at 1172.

The advice of Thomas‘ Illinois attorney, which hindsight
reveals was very bad indeed, nevertheless does not rise to the
level of gross neglect. He believed Thomas was not subject to
Montana jurisdiction, but he was wrong. He did not, however,
abandon Thomas mid»way through an action, or misrepresent to Thomas
the steps he was taking on Thomas' behalf.

Thomas points out, however, that this attorney did not carry
malpractice insurance and is now bankrupt, making him essentially
judgment-proof. These circumstances, while unfortunate, are not
relevant to the question of whether the default should be set
aside. The actions of ?homas’ Illinois attorney did not constitute
gross neglect. As such, they are not reason enough to set aside
the default judgment.

Finally, we note that Thomas waited over five years before
moving the court to set aside the judgment, during the first two of
which he was actively challenging the validity of the judgment in
the Illinois courts. Even after the Illinois appellate court ruled
the judgment was valid in 1991, Thomas waited over three years
before moving the court to set aside the judgment. Thomas offers
no reason for this inexcusable delay.

Since Thomas failed to show fraud upon the court or a valid

"other reason" to set aside the default judgment against him, the

ll

District Court did not abuse its discretion in denying his motion.

dr 6€'

Justice

Affirmed.

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