ABC Collectors, Inc. v. Birnel

February 5 2008

DA 07-0060

IN THE SUPREME COURT OF THE STATE OF MONTANA

2008 MT 35

ABC COLLECTORS, INC., a Montana Corporation,

Plaintiff,

v.

KATHY BIRNEL, KENNETH BIRNEL,

Defendants, Third-Party Plaintiffs and Appellees,

v.

WESTERN MUTUAL INSURANCE,

Third-Party Defendant and Appellant.

APPEAL FROM: District Court of the Eleventh Judicial District,
In and For the County of Flathead, Cause No. DV 2004-852(A)
Honorable Stewart E. Stadler, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Angela K. Jacobs, Bryce R. Floch, Hammer, Hewitt, Jacobs & Floch,
PLLC, Kalispell, Montana

For Appellees:

Daniel W. Hileman, Kaufman, Vidal, Hileman & Ramlow, P.C.,
Kalispell, Montana

Submitted on Briefs: September 12, 2007

Decided: February 5, 2008

Filed:

__________________________________________
Clerk
Justice Patricia O. Cotter delivered the Opinion of the Court.

¶1 Appellant Western Mutual Insurance (WMI) appeals an order of the Eleventh

Judicial District dated December 11, 2006, which reinstated a default judgment originally

entered against WMI on June 7, 2005. The reinstated default judgment awarded damages

to Appellees Kathy and Kenneth Birnel for breach of contract and various violations of

the Montana Unfair Trade Practices Act, §§ 33-18-101 through 1006, MCA (UTPA). We

reverse the District Court’s reinstatement of the June 7, 2005 default judgment and

remand for further proceedings consistent with this Opinion.

FACTUAL AND PROCEDURAL BACKGROUND

¶2 The Birnels were insured by WMI. They submitted claims for medical bills to

WMI which were not paid. As a result of the non-payment, ABC Collectors sued the

Birnels for the medical expenses. The Birnels, in turn, filed a third-party complaint

against WMI on March 21, 2005, claiming that WMI committed breach of contract and

violated various provisions of the UTPA when it failed to pay for medical services

received by Kathy Birnel.

¶3 Because WMI is a foreign insurer, the insurance commissioner is designated as its

attorney to receive service of process under § 33-1-601, MCA. Accordingly, WMI’s

complaint and summons were sent to the commissioner for service upon WMI. The

insurance commissioner forwarded this summons to WMI, but WMI never responded.

The Birnels moved for an entry of default judgment which was granted on June 7, 2005.

¶4 On June 13, 2005, WMI filed a motion to set aside the default judgment. As it

explained in its motion, WMI had changed its address in May of 2000 and had notified

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the commissioner by letter of its new location. However, WMI did not complete a 1042

form, which the insurance commissioner claimed was required in order to effect a change

of address for service of process purposes. As a result, the insurance commissioner sent

service of process to WMI’s former address, and WMI never received it. Claiming the

commissioner erred by sending the summons and complaint to the wrong address, WMI

moved to set aside the default judgment, pursuant to M. R. Civ. P. 60(b).

¶5 On July 28, 2005, the District Court granted WMI’s motion and set aside the

default judgment. On August 2, 2005, the Birnels filed a motion to reconsider, seeking to

have the default judgment reinstated. On August 25, 2005, the Birnels also filed a notice

of appeal, challenging in this Court the District Court’s grant of WMI’s motion to set

aside the default judgment. The next day, August 26, 2005, the District Court granted the

Birnels’ motion to reconsider and reinstated the default judgment, prompting the Birnels

to withdraw their notice of appeal. On August 30, 2005, out of concern that their

previous notice of appeal might have divested the District Court of jurisdiction, the

Birnels moved the District Court to reissue its previous order granting their motion to

reconsider. According to the District Court docket, the District Court did not rule on this

motion, but did issue a scheduling order on September 7, 2005. On September 21, 2005,

WMI appealed the District Court’s August 26, 2005 order reinstating the default

judgment to this Court.

¶6 WMI’s appeal led to our decision in ABC Collectors, Inc. v. Birnel, 2006 MT 148,

332 Mont. 410, 138 P.3d 802 (“Birnel I”), wherein we reversed the reconsideration of the

motion to set aside the default judgment, and remanded the case back to the District

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Court. In Birnel I, we held that the Birnels’ motion for reconsideration was not

authorized by the Montana Rules of Civil Procedure, and that by filing a notice of appeal

on August 25, 2005, the Birnels had in any event divested the District Court of

jurisdiction to entertain the motion to reconsider in the first place. Birnel I, ¶¶ 18-19.

¶7 After remand, on November 6, 2006, the District Court denied a motion filed by

the Birnels under M. R. Civ. P. 59(g) to alter or amend the order setting aside the default

judgment. The District Court then entertained a motion for partial summary judgment

filed by WMI, setting oral argument on the motion for November 17, 2006. During oral

argument, though no motion was before the District Court, the Birnels asserted that their

August 30, 2005 motion to reissue the District Court’s previous order reinstating the

original default judgment was still on the table, and urged the District Court to simply

“reissue” this order once again.

¶8 On December 11, 2006, the District Court, sua sponte, reinstated the default

judgment originally entered against WMI on June 7, 2005. The District Court concluded

that it had erred in previously setting aside the default judgment because WMI had failed

to establish good cause to set aside the default judgment as required under Matthews v.

Don K. Chevrolet, 2005 MT 164, 327 Mont. 456, 115 P.3d 201.

¶9 WMI now appeals this latest order from the District Court, arguing it is in

violation of M. R. Civ. P. 55(b)(2), and that the District Court substantially abused its

discretion in issuing it. Because we find WMI’s argument under M. R. Civ. P. 55(b)(2)

dispositive, we reverse the District Court on that ground and do not address the other

arguments WMI raises on appeal.

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 STANDARD OF REVIEW

¶10 Default judgments are not favored, in deference to the principle that every litigated

case should be decided on its merits. Matthews, ¶ 9. Thus, we review an appeal from a

denial to set aside a default judgment for only a slight abuse of discretion. Matthews, ¶ 9.

DISCUSSION

¶11 Did the District Court violate M. R. Civ. P. 55(b)(2) and abuse its discretion when
it reinstated the June 7, 2005 default judgment against WMI?

¶12 We agree with WMI that the reinstatement of the original default judgment by the

District Court was done in violation of M. R. Civ. P. 55(b)(2), thereby constituting an

abuse of discretion by the District Court. This rule states in pertinent part:

In all other cases the party entitled to a judgment by default shall apply to
the court therefor . . . . If the party against whom judgment by default is
sought has appeared in the action, the party (or, if appearing by
representative, the party’s representative) shall be served with written
notice of the application for judgment at least 3 days prior to the hearing
on such application.

¶13 This Rule does not permit the District Court to enter a default judgment sua sponte

and without application by a party, as it did here when it reinstated the default judgment

against WMI which it had previously set aside. Further, the Rule requires that the party

against whom judgment is sought be served with written notice of the application for the

judgment at least three days in advance. Neither of these aspects of the Rule was

satisfied here. Moreover, even assuming that the Birnels had filed a new motion with the

District Court asking it to reconsider and “reissue” its previous order reinstating the June

7, 2005 default judgment, it should be abundantly clear from Birnel I that such a motion

is not permitted under the Montana Rules of Civil Procedure. As we stated in Birnel I,

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 Notwithstanding their argument on appeal, the Birnels’ motion for
reconsideration failed to refer at all to Rule 59, M.R.Civ.P. Nor did it
discuss a “manifest error of law.” Instead, the Birnels’ motion for
reconsideration merely restated their argument that WMI had not
established the excusable neglect necessary to set aside a default judgment.
We conclude the Birnels’ motion for reconsideration was not in the nature
of a Rule 59(g), M.R.Civ.P., motion to alter or amend the judgment. The
motion was precisely what it purported to be—a motion for reconsideration
not authorized by Montana civil procedure rules.

Birnel I, ¶¶ 17-18 (citing Nelson v. Driscoll, 285 Mont. 355, 359, 948 P.2d 256,
258 (1997)).

¶14 The August 30, 2005 motion to “reissue” the District Court’s previous order of

default judgment is precisely the type of motion which we explicitly stated in Birnel I is

not allowed under the Montana Rules of Civil Procedure. It is devoid of any reference to

M. R. Civ. P. 59 whatsoever. And, in fact, the District Court had already denied a motion

filed by the Birnels to amend or alter the order setting aside the default judgment

pursuant to M. R. Civ. P. 59(g) on November 6, 2005. Thus, the District Court abused its

discretion in sua sponte reconsidering the question and “reissuing” its previous order

granting a default judgment against WMI. While this ruling would normally conclude

our Opinion, we proceed further for the reasons set forth below.

¶15 In arguing against WMI’s appeal, the Birnels ask us to reach the merits of the

propriety of the earlier entry of default judgment against WMI. They contend that

§ 33-1-601, MCA, requires foreign insurers such as WMI to submit a 1042 form

whenever they wish to change their designated address for receiving out-of-state service

of process, and that WMI’s failure to submit this form is fatal to its attempt to set aside

the default judgment. In light of the tortured path this case has taken—with two appeals

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before the default issue is even resolved—we conclude that the interests of judicial

economy compel us to address this question notwithstanding our procedural ruling in

favor of WMI. We begin with § 33-1-601, MCA, which reads as follows:

Commissioner—attorney for service of process.

(1) Each insurer applying for authority to transact insurance in this state
shall appoint the commissioner as its attorney to receive service of legal
process issued against it in Montana. Service of legal process under this
section means a summons and a complaint. The appointment must be
made on a form designated and furnished by the commissioner. The
appointment is irrevocable, binds the insurer and any successor in interest
or to the assets or liabilities of the insurer, and remains in effect as long as
there is in force in Montana any contract made by the insurer or
obligations arising from a contract.
(2) Each insurer at the time of application for a certificate of authority
shall file with the commissioner the name and address of the person to
whom process against it served upon the commissioner is to be forwarded.
The insurer may change the designation by a new filing.

¶16 Section 33-1-601(1), MCA, compels an insurer to appoint the commissioner as its

attorney to receive legal process, providing that “the appointment must be made on a

form designated and furnished by the commissioner.” WMI complied with this

requirement in making the initial appointment. Section 33-1-601(2), MCA, simply

provides that foreign insurers can change the name and address of the person who will

receive out-of-state service “by a new filing.” While the Birnels assert that this “new

filing” can be accomplished only by way of the 1042 form, the statute does not say so.

¶17 We interpret statutes according to their plain meaning. Sturchio v. Wausau

Underwriters Ins. Co., 2007 MT 311, ¶ 10, 340 Mont. 141, ¶ 10, 172 P.3d 1260, ¶ 10.

“Further, we refuse to insert ‘what has been omitted or to omit what has been inserted.’ ”

Sturchio, ¶ 10 (quoting Section 1-2-101, MCA). We agree with WMI that the plain

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language of § 33-1-601, MCA, requires a designated form to make the initial

appointment for service of process, but requires only a “new filing” for change of address

for receiving out-of-state service of process. Section 33-1-601, MCA, simply does not by

its terms require the use of a particular form for the accomplishment of such change of

address. The District Court should take account of this conclusion in the event it is called

upon on remand to once again analyze the propriety of a default judgment against WMI.

CONCLUSION

¶1 Accordingly, we reverse the District Court’s reinstatement of the June 7, 2005

default judgment and remand for further proceedings consistent with this Opinion.

/S/ PATRICIA COTTER

We Concur:

/S/ KARLA M. GRAY
/S/ JIM RICE
/S/ JAMES C. NELSON
/S/ JOHN WARNER

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