No. 92-409
IN THE SUPREME COURT OF THE STATE OF MONTANA
1993
RUSSELL ERIC MAULDING,
Plaintiff and Respondent,
-vs-
ROBERT HARDMAN,
Defendant and Appellant.
APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark,
The Honorable Jeffrey Sherlock, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Joe Seifert: Gough, Shanahan, Johnson & Waterman,
Helena, Montana
For Respondent:
John C Doubek: Small, Hatch, Doubek
. & Pyfer,
Helena, Montana
~iledfEB 1
1 1993
D .'
Submitted on Briefs: December 3, 1992
Decided: February 11, 1993
STATE OF. ffiONS'
Justice John Conway Harrison delivered the Opinion of the Court.
This is an appeal from the District Court of the First
Judicial District, Lewis and Clark County, the Honorable Jeffrey M.
Sherlock presiding. Appellant Robert Hardman (Hardman) appeals
from the denial of his Motion to Set Aside Default Judgment which
was deemed denied under Rule 60(c), M.R.Civ.P., because the
District Court failed to rule on it within 45 days of its filing.
We set aside the default judgment and remand for a trial on the
merits.
The sole issue is whether Hardman is entitled to have the
default judgment set aside in favor of a trial on the merits.
In the early morning hours of September 5, 1989, Hardman,
respondent Russell Maulding (Maulding), Dan Forsina, and Crickett
Martin were driving in the Sieben Ranch area near Helena. Hardman
was driving his mother's car. According to Hardmantstestimony at
the hearing on the motion, while rounding a curve the car slid off
the road due to loose gravel. The car came to a stop in the ditch
without hitting any obstructions. While Maulding drove, the other
three pushed the car out of the ditch, scraping a fence and
knocking out a post along the way. After getting out of the ditch
they drove home. No one appeared injured or complained of being
injured at the time, but when a highway patrolman cited Hardman
around 5:00 p.m. the next day for not reporting an accident, he
learned that Maulding had visited the hospital. Hardman later pled
guilty to the charge of not reporting an accident and paid a fine.
On September 13, 1989, John Doubek, Mauldingtsattorney, sent
2
a letter to The Farmers Insurance Group of Companies demanding
payment of Maulding's medical expenses. On September 20, James
Higgins, a claims representative with Farmers, spoke with Doubek
and took Hardman's statement regarding the accident. Given
Hardman's version of the incident, Higgins questioned liability and
denied payment at that time. According to Higgins, Dan Forsina's
statement, which he took on January 3, 1990, corroborated Hardman's
description of the incident, and he conveyed this to Doubek that
day.
The only documents presented to Higgins to substantiate the
claimed injury were the emergency room record, which indicated only
that Maulding was to rest his back, and a copy of a prescription.
He received no other documents substantiating Maulding's claim.
Nor did he receive a copy of the Montana Highway Patrol report from
Doubek as he expected. Higgins also tried to contact Doubek
regarding the case, but Doubek did not return his calls. He had no
further contact with Doubek on this matter until Doubek sent a
letter in May 1992 requesting payment of the judgment.
Maulding filed suit against Hardman on May 19, 1991, alleging
a much different version of the accident than given by Hardman.
Maulding alleged that Hardman was under the influence of alcohol,
driving carelessly and recklessly and at excessive speed, and that
they went over an embankment resulting in serious bodily injury to
Maulding. The complaint was served on Hardman on May 1, 1991.
Because Hardman was convinced that nothing had happened, he put the
documents in a drawer, took no action, and told no one of them.
On June 24, Doubek requested that the clerk enter Hardman's
default for failing to answer or otherwise appear. On November 8,
1991, the District Court entered default judgment on the issue of
liability with damages to be determined later upon the proper
showing. The court held a hearing on damages on March 17, 1992,
and on March 19 entered judgment in the amount of $81,306.31. On
May 19, Doubek requested that the clerk issue an execution writ
against Hardman. On the previous day Higgins received a letter
from Doubek informing him of the proceedings and offering to settle
the matter for $75,000 if paid immediately.
The insurer responded by providing counsel for Hardman, who
moved to set aside the default judgment on May 22. The court set
a hearing on the motion for July 16, 1992. At the hearing, Doubek
raised the issue of whether the hearing was timely, citing Rule
6O(c), M.R.Civ.P., which in conjunction with Rules 59(d) and (g)
requires the court to rule on the motion within 45 days of filing
or it is deemed denied and the court loses jurisdiction to decide
the matter. The court took that issue under advisement and heard
the testimony regarding the motion to set aside the default
judgment. The judge required the parties to brief the timeliness
issue.
After reading Maulding's brief, Hardman conceded that the
District Court lost jurisdiction to decide the motion on July 7,
1992, the date on which it was deemed denied. Hardman filed his
Notice of Appeal on July 24, 1992.
The issue before this Court is whether Hardman is entitled to
have the default judgment set aside in favor of a trial on the
merits.
Maulding argues that there simply is no evidence in the record
upon which Hardman or this Court may rely in deciding this issue.
He points out that Hardman's attorney did not present any
affidavits in support of his motion. However, an affidavit of
merit is no longer required under our Rules of Civil Procedure.
Blume v. Metropolitan Life Ins. Co. (1990), 242 Mont. 465, 470, 791
P.2d 784, 787; Keller v. Hanson (1971), 157 Mont. 307, 309, 485
P.2d 705, 707; see also Rule 11 and Rule 6O(b), M.R.Civ.P. In this
case, Hardman's brief in support of his motion set forth the facts
and the evidence he intended to show at the hearing on the motion.
That is all that was required at that point.
Maulding next argues that because the District Court lost
jurisdiction to entertain the motion, the evidence presented at the
hearing is not part of the record and may not be cited by Hardman
or relied on by this Court. Under Rule 60(c), M.R.Civ.P., the
motion was deemed denied because the 45-day time limit had expired.
Therefore, the District Court lost jurisdiction to entertain the
,
motion. In re the Marriage of McKinnon (1992) 251 Mont. 347, 350,
825 P.2d 551, 553; In re the Marriage of Miller (1989), 238 Mont.
108, 112, 776 P.2d 1218, 1220.
However, it is within this Court's power under 5 3-2-204, MCA,
to consider any trial court proceedings that affect the parties'
substantial rights, and we may for good cause remand this case for
further proceedings. United Farm Agency v. Blome (1982), 198 Mont.
435, 438, 646 P.2d 1205, 1207. See also Cabalceta v. Standard
Fruit Co. (11th Cir. 1989), 883 F.2d 1553, 1555 (in determining
whether to exercise its inherent equitable power to supplement the
record, appellate court should evaluate all factors, issues, and
circumstances including whether accepting the material into the
record would establish beyond a doubt the proper resolution of the
pending issue and whether remand would be contrary to the interests
of justice and judicial economy); and Turk v. United States (8th
Cir. 1970), 429 F.2d 1327, 1329 (in the interest of justice the
appellate court may order record enlarged in order to review
testimony in transcript of preliminary hearing).
In this case, Maulding had full opportunity to prepare for the
hearing, to cross-examine Hardman's witnesses, and to present his
own evidence. There is no claim of an evidentiary error at the
proceeding, and we see none in the transcript. Further, that
evidence was necessary for Hardman to support his motion. More
importantly, that evidence is necessary for this Court to make an
informed decision on this matter. Therefore, in the interest of
justice and judicial economy, this Court will consider the evidence
presented at the July 16 hearing. To remand this case to the
District Court for a second hearing on the motion would be
nonsensical.
We now turn to Hardman's motion to set aside the default
judgment. That motion is governed by Rule 60(b), M.R.Civ.P. As a
general rule, cases are to be tried on the merits and judgments by
default are not favored. Lords v. Newman (1984), 212 Mont. 359,
363, 688 P.2d 290, 293; Little Horn State Bank v. Real Bird (l979),
183 Mont. 208, 210, 598 P.2d 1109, 1110. Where the motion is made
and "supported by a showing that leaves responsible minds in doubt,
courts tend to resolve [those] doubts in favor of the motion, since
courts favor a trial on the issues over a default judgment."
Twenty-Seventh Street, Inc. v. Johnson (1986), 220 Mont. 469, 471,
716 P.2d 210, 211. Furthermore, if the District Court had denied
the motion, rather than allowing it to be deemed denied, we would
only be required to find a slight abuse of discretion in order to
reverse the denial. Twentv-Seventh Street, Inc., 716 P.2d at 210.
However, a party seeking to set aside a default judgment must
show both a good cause for doing so under Rule 60(b) and the
existence of a meritorious defense. First Nattl Bank of Cut Bank
v. Springs (1987), 225 Mont. 62, 67, 731 P.2d 332, 335. We will
discuss the good cause requirement shortly. As for a meritorious
defense, Hardman testified at the hearing that the car simply slid
off the road due to loose gravel and that no one was injured, and
Higgins testified that the statement he took from Dan Forsina, a
non-party, corroborated Hardman's version of the accident.
Although the merits are to be finally decided at trial, Hardman has
met his burden at this point.
Turning now to the justification under Rule 60(b), Hardman
specifically cited subsections (I), (3), and (6) of that rule which
provide:
-
- - -
Rule 60(b). Mistakes inadvertence excusable neglect
newly discovered evidence fraud, etc. On motion and
upon such terms as are just, the court may relieve a
party or a party's legal representative from a final
judgment, order, or proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable
neglect; ... (3) fraud (whether heretofore denominated
intrinsic or extrinsic), misrepresentation, or other
misconduct of an adverse party; . . .
(6) any other
reason justifying relief from the operation of the
judgment.
Rule 60(b) further provides that "[tlhe motion shall be made
within a reasonable time, and for reasons (I), (2), and (3) when a
defendant has been personally served, . . . not more than 60 days
after the judgment, order or proceeding was entered . . .. II
Maulding cites Libby Rod & Gun Club v. Moraski (D.C. Mont.
1981) 519 F.Supp. 643, 647, where the court said, "[Ilt is
generally held that if a party seeks relief under any other
subsection of Rule 60(b), it cannot also claim relief under
60(b) (6)" to support his argument that Hardman is precluded from
claiming relief under subsection (6). And because relief under
subsections (1) and (3) is time barred, he argues, Hardman is not
entitled to any relief at all under Rule 60(b). However, the above
quote from Libbv Rod & Gun Club is not a full or fair statement of
the law as this Court views it. We stated our interpretation in
Wright and Miller cite several federal cases construing
Federal Rule 60(b), which is almost identical to the
Montana Rule, and state:
These cases certainly seemed to establish that
clause (6) and the first five clauses are
mutually exclusive and that relief cannot be
had under clause (6) if it would have been
available under the earlier clauses. This
reading seems required also by the language of
the rule.
We agree with Wright and Miller's interpretation that
relief cannot be obtained under Rule 60(b)(6),
M.R.Civ.P., if that relief is available under Rule
6O(b) (1) to (5), M.R.Civ.P.
731 P.2d at 334 (citation omitted).
A party is precluded from relief under subsection (6) when the
facts or circumstances would bring the case under one of the first
five subsections. In that instance, the party is not entitled to
relief under subsection (6) based on the same facts or
circumstances. Here, however, the fact that Hardman requested
relief under subsections (1) and (3) and also under subsection (6)
is not fatal. Our recent opinion in Koch v. Billings School Dist.
No. 2 (Mont. 1992), 833 P.2d 181, 49 St.Rep. 517, where we said
that the plaintiff should have chosen between subsection (5) and
(6) because they are mutually exclusive, illustrates this. The
plaintiff's failure to make this choice did not prevent the
District Court or this Court from determining which subsection was
proper. We conclude that in this case Hardman's motion should have
been based on subsection (6), and we will analyze it under that
subsection alone.
A motion under subsection (6) must be "made within a
reasonable time.I' Rule 60(b), M.R.Civ.P. In this case, Higgins
received a letter from Doubek 60 days after entry of judgment
informing him of the judgment, requesting payment, and offering to
settle the case for $75,000 if paid immediately. We note that the
timing of this letter prevented Hardman from claiming relief under
the first three subsections of Rule 60(b) due to the 60-day
requirement. The insurance company hired an attorney who filed the
motion and supporting brief four days later. The motion was made
9
within a reasonable time and with due diligence under these
circumstances.
We conclude that Hardman is entitled to relief under Rule
60(b)(6) for two reasons. The first reason is the manner in which
Doubek handled this case. The second reason is the manner in which
damages were established and awarded.
This Court said in In re Marriage of Castor (1991), 249 Mont.
495, 500, 817 P.2d 665, 668, "Generally, relief is afforded under
subsection (6) of Rule 60(b) in extraordinary situations when
circumstances go beyondthose covered by the first five subsections
or when a party in whose favor judgment was entered has acted
improperly.I1 In this case Doubek initially made a demand on the
insurance company a week after the accident and requested a $75
payment a week after that. However, the only documents he sent the
insurance adjuster were a copy of an emergency room report and a
copy of a prescription. These documents did not give a history of
the injury or any other information. Although Higgins requested a
copy of the highway patrol report, Doubek did not send one or
indicate why he could not. Nor did Doubek provide any further
documentation to substantiate this claim. Further, he failed to
return Higgins' telephone calls regarding this matter. He then
sought payment from the insurance company once he had obtained a
judgment although he did not inform Higgins of any of the
proceedings. We realize that as a general rule, Doubek was not
required to inform the insurance company of the proceedings.
However, he clearly knew of the insurance company's interest in
this lawsuit and proceeded at all times with an eye toward
collecting from the insurance company once he obtained a judgment
for Maulding. We have previously recognized that prejudice
resulting to third parties is to b, considered in a Rule 60(b)
e
motion. See Ring v. Hoselton (1982), 197 Mont. 414, 643 P.2d 1165;
John J. Ming, Inc. v. District Court (l97O), 155 Mont. 84, 466 P.2d
907.
We are also mindful of Rule 3.3 of the Rules of Professional
Conduct and our decision in Madson v. Petrie Tractor & Equipment
Co. (1938), 106 Mont. 382, 77 P.2d 1038. Rule 3.3 requires a
lawyer in ex parte proceedings to inform the court of all material
facts known by the lawyer whether or not they are adverse. In
Madson we vacated a default judgment partly because the plaintiff's
attorney did not speak up at a hearing and correct defendant's
attorney who stated there had been no service of process on his
clients. Although plaintiff's attorney knew that the defendant had
been served because he had received the sheriff's return of
service, he waited until he moved for entry of default to
acknowledge it.
In the present case, Doubek was aware that an insurance policy
covered the claim, and he was informed by Higgins that Dan
Forsina's statement corroborated Hardman's version of the accident.
We believe Doubek should have informed the District Court of these
facts.
We now turn to the manner in which the damages were
established and awarded in this case. We first look at the award
of punitive damages. At the close of the hearing, the District
Court awarded $25,000 for punitive damages. This award is based on
an allegation in the complaint that stated, "Plaintiff is uncertain
as to whether defendant was operating his vehicle while under the
influence of alcohol but, upon information and belief, alleges that
said defendant had been drinking prior to driving his vehicle."
"[Nlo plaintiff is ever entitled to exemplary damages as a
matter of right, regardless of the situation or the sufficiency of
the facts." Davis v. Sheriff (1988), 234 Mont. 126, 133, 762 P.2d
221, 226. Section 27-1-221(5), MCA, requires that all elements of
a claim for punitive damages be proven by clear and convincing
evidence, and 5 27-1-221(7) (b), MCA, requires the judge to "clearly
state his reasons for making the award in findings of fact and
conclusions of law, demonstrating consideration of each of [nine
enumerated factors]." The only evidence presented here is an
unsubstantiated claim in the complaint. As to the second
requirement, the only reasons stated consist of a statement in the
Judgment prepared by Doubek that "the evidence showed that the
damages sustained by the Plaintiff were for personal injury caused
by DefendantHardmanlsoperation of a motor vehicle while Defendant
Hardman was intoxicated from using alcohol." As we said above,
there was no evidence. Further, this statement does not satisfy
the requirements of 9 27-1-221(7)(b), MCA. See Ward v. Vibrasonic
Laboratories, Inc. (1989), 236 Mont. 314, 769 P.2d 1229 (district
court erred by not making findings pursuant to 9 27-1-221, MCA).
We next look at the way the medical evidence was presented in
order to establish damages. Doubek was allowed to give an
unqualified expert medical opinion regarding Hardman's condition
and prognosis for recovery. The District Court should not have
accepted this testimony because, on these matters, it should depend
on qualified expert testimony. See Rules 701 and 702, M.R.Evid.;
Shahrokhfar v. State Farm Mut. Auto. Ins. Co. (1981), 194 Mont. 76,
634 P.2d 653; Hill v. Squibb & Sons, E.R. (1979), 181 Mont. 199,
592 P.2d 1383. We conclude that this hearing was conducted as a
matter of form over substance and that justice would not be served
by requiring Hardman or his insurer to answer for damages
established in this manner.
Lastly, Maulding argues that he would be prejudiced if the
default judgment were vacated. However, there is no indication in
the record that any of the witnesses are unavailable or that
Maulding will be unable to produce documentation of the accident
and any treatment he underwent. Furthermore, any prejudice that
might arise is attributable to Maulding. The incident giving rise
to this lawsuit occurred on September 5, 1989. Although Doubek
made demands on the insurance company a week later, he failed to
substantiate the claim or to return Higgins' calls regarding this
matter. He then waited for a year and a half to file his complaint
and another 40 days after that to serve Hardman. Then he waited
nearly two months before requesting that Hardman's default be
entered. In January 1992 the court had to prompt him to request a
hearing on damages. This hearing was finally held and the court
granted judgment on March 17, 1992. Doubek then waited for two
more months to pass before requesting an execution be issued and
before c o n t a c t i n g Higgins. Any prejudice that might result from
delay is attributable only to Maulding,
Based on the foregoing, we vacate the default judgment and
remand to the District Court for a trial on the merits.
Justice Karla M. Gray, dissenting.
I respectfully dissent from the opinion of the majority.
The majority opinion strongly implies, without quite saying in
so many words, that respondent Maulding's counsel engaged in slsharp
practicesI1 in his handling of this case. I do not disagree. It is
my view, however, that in its concern over counselps actions and
its determination to right a wrong, the majority fails to do an
appropriate and precise Rule 6O(b)(6), M.R.Civ.P., analysis. The
result is a further clouding of a Rule already so murky as to be of
little guidance to trial courts and counsel. For this reason, I
cannot join in the majority opinion.
In my opinion, an appropriate Rule 60(b)(6) analysis supports
setting aside the entry of default judgment on damages by the
District Court. It does not allow the setting aside of the earlier
default judgment on liability against appellant Hardman.
The critical difference lies in the fact that the challenge to
the judgment on liability is grounded on actions of both Hardman
himself and Maulding's counsel which bring it squarely within
subsections (1) and (3) of the Rule. The 60-day limitation for
motions brought pursuant to those subsections expired on or about
January 8, 1992--60 days after the default judgment on liability
was entered November 8, 1991. The challenge to the default
judgment on damages, on the other hand, is a legitimate Iganyother
reasonppmotion pursuant to Rule 60(b)(6), premised as it is on
significant irregularities at the hearing on damages. Therefore,
that motion need not have been made within 60 days subsequent to
the entry of default judgment on damages on March 19, 1992.
This analysis comports with the majority's correct statement
that a "party is precluded from relief under subsection (6) when
the facts or circumstances would bring the case under one of the
first five subsections.~~ Here, motions under subsections (1) and
(3) were premised on events relating to the entry of judgment on
liability; thus, they were not timely made due to the fact that
more than 60 days had elapsed from the time of the liability
judgment to the date the motions were made.
The subsection (6) motion, however, was based on d i f f e r e n t
facts and circumstances--those surrounding the hearing on damages
and the default judgment entered thereon. These facts and
circumstances do not fall within one of the other subsections of
the Rule; thus, Hardman is not precluded from relief under
subsection (6). This portion of the motion--timely under the
"reasonable time" limitation for Rule 60(b) (6) motions--properly
can and should be granted.
In addition, the majority's reliance on dicta from In re
Marriage of Castor (1991), 249 Mont. 495, 817 P.2d 665, will haunt
this Court and Rule 60(b) practice for a long time to come. In
Castor, we stated correctly that relief is afforded under
subsection (6) of Rule 60(b) "in extraordinary situations when
circumstances go beyondthose covered by the first five subsections
... I.
' Unfortunately, we went on to say--both needlessly, under
the facts of Castor, and erroneously, in my view--that relief was
also available under subsection (6) "when a party in whose favor
judgment was entered has acted improperly-l1 Castor, 817 P.2d at
668. That portion of our statement had no applicability to the
case before us: nor, indeed, was it supported by the cases we cited
therein.
It is my view that the "when a party in whose favor judgment
was entered has acted improperlyt1criterion for Rule 60(b)(6)
applicability is entirely inappropriate. Such considerations
clearly come within subsection (3):s "fraud . . . , misrepre-
sentation, or other misconduct of an adverse partywtlanguage. As
such, motions on that basis would be untimely unless brought within
60 days of the judgment. By erroneously including that language
within the applicability of subsection (6) of the Rule in Castor,
we departed from the fundamental requirement that subsection (6)
relief is not available when the facts or circumstances would bring
the case under one of the first five subsections and from our
appropriate reliance on Wright and Miller. That fundamental
requirement will be impossible for us to apply in the future so
long as we refuse to say in a straightforward manner that the
quoted Castor language was erroneous dicta. Having joined in the
Castor opinion, I am willing to admit my error; I wish that the
majority would see fit to do the same in order that the salutary
purposes of Rule 60(b) can continue to be met.
Finally, the majority appears to "believelt that Maulding1s
counsel violated Rule 3.3 of the Rules of Professional Conduct. If
the majority is sincere in this belief, it appears to me that the
Canons of Judicial Ethics may require it to refer the matter to the
Commission on Practice. Absent such a referral, I question whether
statements about violations of the Rules of Professional Conduct
have an appropriate place in our decisions.
I would reverse only the denial of Hardman's Rule 60(b) (6)
motion and remand for further proceedings on damages. While this
result might not be entirely Itfairlt Hardmanasinsurer, it would
to
preserve the integrity of Rule 60(b) and provide appropriate and
necessary guidance to practitioners and trial courts.