No. 90-239
IN THE SUPREME COURT OF THE STATE OF MONTANA
1990
DONALD DEAN,
Plaintiff and Respondent,
FRED'S TOWING, MISSOULA COUNTY
SHERIFF'S DEPARTMENT,
Defendants,
and
MICHAEL R. HOEPFNER,
Defendant and Appellant.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable Douglas G. Harkin, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Terry G. Sehestedt, Attorney at Law, Missoula,
Montana
Barbara Dockery Tremper, Attorney at Law, Missoula,
Montana
For Respondent:
Morgan ~odine,Attorney at Law, Missoula, Montana
Submitted on Briefs: September 13, 1990
Decided: November 26, 1990
Filed: W
1 'I
Justice Diane G. Barz delivered the Opinion of the Court.
Appellant, Michael Hoepfner appeals from the denial of his
motion to set aside a default judgment issued by the Fourth
Judicial District Court, Xissoula County, and from the court's
ruling that funds in a joint bank account traceable to his spouse's
social security benefits are not exempt from execution. We affirm
in part, reverse in part and remand.
Appellant raises the following issues on appeal:
1. Did the District Court abuse its discretion in refusing
to set aside the default judgment against Hoepfner?
2. Did the District Court err in finding bank deposits
traceable to the judgment debtor's spouse's social security
benefits are not exempt from execution?
In an earlier action independent of the case at bar, appellant
Michael Hoepfner recovered a judgment by default in the Missoula
County Justice Court against Bob and Edella Icenhower. The
judgment, entered June 1, 1989, arose from the Icenhowerlsfailure
to pay for a 1977 Freightliner truck they were purchasing from
Hoepfner. On the same day, the Justice Court issued a writ of
execution directingthe Missoula County Sheriff to levy against the
Icenhowerlsnon-exempt assets to satisfy the judgment.
On June 13, 1989, pursuant to the writ, a sheriff Is deputy
seized the Freightliner truck. The truck was located on property
owned by respondent Donald Dean. Dean runs an auto repair shop on
the property and had apparently performed repairs on the
Freightliner. In seizing the truck the deputy found it necessary
t c
to enlist the services of Fred's Towing. The truck was towed to
a storage area and later sold at a sheriff Is sale at which Hoepfner
was the successful bidder.
On July 17, 1989, Dean filed a complaint in the District Court
seeking recovery against Hoepfner, the Missoula County Sheriff's
Department and Fred's Towing, jointly and severally. Dean s
complaint alleged that personal and real property of his were
damaged in the course of seizing the Freightliner; that Dean had
an agister's lien against the Freightliner for repairs performed;
and that Hoepfner paid less than fair market value for the truck
at the sheriff's sale.
Hoepfner and Fred Burgess of Fred's Towing were both served
with summons and complaint on July 25, 1989. On August 1, 1989,
a temporary restraining order was served upon Hoepfner, restraining
him from selling, transferring, or otherwise disposing of the
Freightliner truck. On August 2, 1989, Hoepfner sent a letter to
Dean's attorney regarding the lawsuit and sent a copy to the
Justice Court rather than the District Court. The letter never
reached the proper court file.
Hoepfner never made a formal appearance in the cause and on
December 13, 1989, entries of default and default judgment were
entered against him.
Following denial of Hoepfner's motion to set aside the default
judgment the court conducted a hearing to determine whether the
money seized from Mr. and Mrs. Hoepfner's joint bank account was
exempt from execution. The court found that Mr. Hoepfner's social
I 1
security benefits were exempt, but that his spouse's social
security benefits, totaling $244, were properly seized pursuant to
the writ of execution.
Did the District Court abuse its discretion in failing to set
aside the default judgment entered against Hoepfner?
The Montana Rules of Civil Procedure allow for the setting
aside of a default judgment:
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 55(c), M.R.Civ.P.
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 neglect; . .. 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 60 days
after the judgment, order or proceeding was
entered or taken, or, in a case where notice
of entry of judgment is required by Rule
77(d), not more than 60 days after service of
notice of entry of judgment. . . . This rule
does not limit the power of a court to
entertain an independent action to relieve a
party from a judgment, order, or proceeding,
or to grant relief to a defendant not actually
personally notified as may be required by law,
or to set aside a judgment for fraud upon the
court.
Rule 60(b), M.R.Civ.P.
This Court has previously specified what is necessary to set
1 r
aside a default judgment under the vvexcusable
neglectvv
standard of
Rule 60(b), M.R.Civ.P. :
' I order to justify the district court
!n
in granting the motion, the defendant was
required to show.: (a) That he proceeded with
diligence; (b) his excusable neglect; (c) that
the judgment, if permitted to stand, will
affect him injuriously, and that he has a
defense to plaintiff s cause of action upon
the merits.Iv (Citation omitted.)
Kootenai Corp. v. Dayton (1979), 184 Mont. 19, 26, 601 P.2d 47, 51.
In determining whether the lower court abused its discretion
we must look at Hoepfner's actions and compare them to the
vvexcusable
neglectvv
standard. We find that the second requirement,
the question of excusable neglect, is dispositive of this issue.
Hoepfner argues that his neglect was excusable because he believed
that his letter to Dean's attorney sufficed as his answer and that
a copy of his letter was inadvertently sent to the wrong court.
We have reviewed Mr. Hoepfnerls letter to Dean's attorney and
conclude that it does not serve as a basis for a finding of
excusable neglect. The letter written by Hoepfner was one of
explanation only and does not constitute a legitimate response to
Dean's complaint. Nor is there any showing that the letter was
delivered in a manner reasonably calculated to be filed as an
answer. This conclusion is bolstered by the fact that in his
affidavit in support of the motion to set aside the default
judgment, Hoepfner made the following statements contradicting his
subsequent assertion that he believed the letter sufficed as an
answer:
2. Shortly after he was served with
c I
Summons and Complaint in this cause he met
with Fred Burgess of Fred's Towing, another
Defendant, herein.
3. At said meeting he and Fred Burgess
prepared a handwritten response to the
Complaint and each signed it. Said document
was left with Fred Burgess and it was
Affiant's understanding that Fred Burgess
would and in fact had thereafter filed such
response or answer with the Clerk of this
Court.
No such document was ever filed with the court. Dean's attorney
did receive a letter from Fred Burgess, which was signed only by
Burgess, but this letter was one of warning of dire consequences
in the event that Dean continued with his lawsuit and not an
answer. Moreover, it can hardly be said that Hoepfner was unaware
of court procedures when Hoepfner himself used a default judgment
in the underlying action.
Hoepfner further contends that the letter he sent to Dean's
attorney constituted a sufficient appearance in the cause to have
been entitled to notice prior to the entry of judgment by default
pursuant to Rule 55(b)(2), M.R.Civ.P. Hoepfner argues that Dean's
failure to provide notice is a serious procedural error which
requires setting aside the default judgment.
Rule 55 (b)(2), M.R. Civ.P. , requires three days written notice
of the motion for judgment by default if the party against whom
default judgment is sought has appeared in the action. However,
assuming arsuendo that Hoepfner had made a sufficient appearance
to be entitled to notice, failure to give notice to the defaulting
party does not automatically entitle the defaulting party to
relief, but is merely one consideration to be weighed by the court
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in exercising its discretion in determining a Rule 55(c) motion.
In re Marriage of Neneman (1985), 217 Mont. 155, 160, 703 P.2d 164,
While it is true that default judgments are not favored, Lords
v. Newrnan (1984), 212 Mont. 359, 363, 688 P.2d 290, 293, we agree
with the District Court that the circumstances surrounding this
case do not warrant setting aside the default judgment.
We hold that the District Court did not abuse its discretion
in refusing to set aside the default judgment against Hoepfner.
Did the District Court err in finding bank deposits traceable
to the judgment debtor's spouse's social security benefits are not
exempt from execution?
The District Court, applying B 25-13-608, MCA, found that bank
deposits traceable to Hoepfnerls social security benefits are
exempt from execution. Section 25-13-608, MCA, provides in part:
"(1) A judgment debtor is entitled to exemption from execution of
the following ... (b) benefits the judgment debtor has received
or is entitled to receive under federal social security or local
public assistance legislation ... The District Court, focusing
on the language "judgment debtor1'in the statute, found that social
security benefits belonging to the spouse of the judgment debtor,
and similarly traced to the partiest joint bank account, are not
exempt from execution.
Hoepfner cites 42 U. s . C. 3 407 (a), arguing that federal law
w
mandates the spousegssocial security benefits be found exempt from
execution. We agree.
With respect to social security benefits, 42 U.S.C. 5 407(a)
provides in part:
[Nlone of the moneys paid or payable or rights
existing under this title shall be subject to
execution, levy, attachment, garnishment, or
other legal process .. .
In Philpott v. Essex County Welfare Board (1973), 409 U.S.
413, 93 S.Ct. 590, 34 L.Ed.2d 608, the United States Supreme Court
held that social security funds deposited in a savings account
still maintain their exempt character. Additionally, in
interpreting 42 U.S.C. 5 407 (a), the United States Supreme Court
stated:
But 5 407 does not refer to any Igclaim of
creditorsgg; imposes a broad bar against the
it
use of any legal process to reach all social
security benefits. That is broad enough to
include all claimants . . . .
Philpott, 409 U.S. at 416-17, 93 S.Ct. at 592. We note, however,
that the prohibition contained in 42 U.S.C. 5 407(a) is subject to
certain exceptions. For example, 42 U.S.C. 5 659 provides that
notwithstanding 5 407, money due or payable from the United States
to any individual shall be subject to legal process brought to
enforce the legal obligations to provide child support
or make alimony payments.
The Ohio Court of Appeals, in General Motors Acceptance
Corporation v. Deskins (Ohio App. 1984) , 474 N.E. 2d 1207, addressed
the issue of how to handle commingling of exempt and non-exempt
funds in a joint bank account:
7
We see no reason why the I1tracinglt of
funds as used here to determine what amount in
an account is attributable to exempt funds
should not apply with equal force to exempt
social security funds in an account .
. . if
sums [are] exempt at their source they remain
exempt even though commingled with non-exempt
funds, as long as the exempt source of the
funds [are] reasonably traceable. (Citation
omitted. )
General Motors Acceptance Corp., 474 N.E.2d at 1211-12.
In light of the above, we find that in circumstances such as
those presented in this case, social security benefits deposited
in bank accounts, if reasonably traceable, are exempt from
execution.
Montana recognizes tracing of exempt property in 5 25-13-610,
MCA. Pursuant to § 25-13-610, MCA, when exempt property under 5
25-13-608, MCA, has been converted to cash and deposited in a bank
account, it remains exempt for up to six months to the extent the
bank deposit can be traced to such property by any reasonable
accounting method.
There is no question in the instant case that the spouse's
social security benefits are reasonably traceable. At the hearing
Hoepfner elected to account for the sums present in the joint
account on a llfirst-in-first-outll
basis. The evidence at the
hearing clearly showed that the $2,353.09 on deposit at the time
the account was seized could be traced to the following sources:
(1) wages, interest, and other, $912.42; (2) Hoepfnerls social
security benefits, $1,196.67; and (3) Hoepfnerls spouse's social
security benefits, $244.00.
We hold the ~istrictCourt erred in finding bank deposits
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traceable to the judgment debtor's spouse's social security
benefits are not exempt from execution.
Affirmed in part, reversed in part and remanded for
proceedings consistent with this opinion.
We concur:
I A 7--~
Chief Justice