Opinion
Nos. 108,613 108,982.
2013-12-27
Charles & Debbie JONES, Appellees, v. NATIONAL WARRANTY SERVICE, INC., Defendant, and Carmax Auto Superstores, Inc., Garnishee/Appellant.
Appeal from Wyandotte District Court; William P. Mahoney, Judge. Todd E. Shadid, of Klenda Austerman LLC, of Wichita, for appellant. Paul Hasty, Jr., of Hasty & Associates, LLC, of Overland Park, for appellee.
Appeal from Wyandotte District Court; William P. Mahoney, Judge.
Todd E. Shadid, of Klenda Austerman LLC, of Wichita, for appellant. Paul Hasty, Jr., of Hasty & Associates, LLC, of Overland Park, for appellee.
Before GREEN, P.J., PIERRON, J., and BUKATY, S.J.
MEMORANDUM OPINION
PER CURIAM.
CarMax Auto Superstores, Inc. (CarMax) appeals from a judgment of the trial court denying its motion to set aside default judgment against CarMax. On appeal, CarMax argues that the default judgment should be set aside because it established excusable neglect, had a meritorious defense, and showed a lack of prejudice to the plaintiffs, Charles and Debbie Jones. We agree. CarMax further argues that the trial court lacked the authority to award attorney fees under K.S.A. 60–741 for a motion to set aside a default judgment. We agree. Accordingly, we reverse the judgment of the trial court and remand with directions to grant CarMax's motion to set aside default judgment against it and to reverse the award of $3,000 in attorney fees against CarMax.
Charles and Debbie Jones (the Jones) obtained a default judgment against National Warranty Service, Inc. (NWS) for breach of contract and breach of the Kansas Consumer Protection Act. After discovering that NWS was bankrupt and out of business, the Jones attempted to collect their default judgment of $16,520.20 from CarMax through a garnishment order. CarMax failed to timely answer the garnishment and did not respond to a motion for judgment against the garnishee. A notice of hearing on the motion for judgment against the garnishee was also served on CarMax, but it failed to respond or appear at the hearing. On March 23, 2012, the trial court entered default judgment against CarMax for the full default judgment amount, plus $500 in attorney fees. CarMax received a copy of the default judgment against it, but it still failed to respond.
In May 2012, the Jones' attorney contacted CarMax's legal department, by phone and by letter, to advise them that an execution would be issued if CarMax failed to pay the judgment against it. After receiving this phone call, CarMax, on May 25, 2012, moved the court to set aside the default judgment claiming excusable neglect.
The trial court held a hearing on CarMax's motion to set aside the default judgment. After hearing arguments, the trial court denied CarMax's motion ruling that CarMax had failed to establish excusable neglect. After the court denied CarMax's motion to set aside the default judgment, the Jones requested additional attorney fees because of the costs of responding to CarMax's motion to set aside the default judgment. The parties agree that the trial court awarded the Jones attorney fees in the amount of $3,000, but the trial court's journal entry was not included in the record on appeal. Did the trial court abuse its discretion in refusing to set aside the default judgment against CarMax?
On appeal, CarMax argues that the trial court abused its discretion in refusing to set aside the default judgment against it because it established excusable neglect, a meritorious defense, and a lack of prejudice in reopening the case. CarMax contends that the interests of justice would best be served by setting aside the default judgment.
A decision to set aside a default judgment rests within the discretion of the trial court. This decision is subject to review under an abuse of discretion standard. See K.S.A.2012 Supp. 60–255(b); First Nat'l Bank in Belleville v. Sankey Motors, Inc., 41 Kan.App.2d 629, 634, 204 P.3d 1167 (2009). “Generally, the trial court's decision is protected if reasonable persons could differ upon the propriety of the decision as long as the discretionary decision is made within and takes into account the applicable legal standards.” State v. Edgar, 281 Kan. 30, 38, 127 P.3d 986 (2006). Judicial discretion is abused when no reasonable person would agree with the decision of the trial court. Hoffman v. Haug, 242 Kan. 867, 873, 752 P.2d 124 (1988).
Default judgments are not favored by the law but are necessary when the inaction of one party frustrates the administration of justice. Jenkins v. Arnold, 223 Kan. 298, 299, 573 P.2d 1013 (1978). The court may set aside a default judgment for good cause. Reliance Insurance Companies v. Thompson–Hayward Chemical Co., 214 Kan. 110, 116, 519 P.2d 730 (1974). A motion to set aside a default judgment will only be granted if the movant has proven by clear and convincing evidence “ ‘(1) that the nondefaulting party will not be prejudiced by the reopening, (2) that the defaulting party has a meritorious defense, and (3) that the default was not the result of inexcusable neglect or a willful act.’ “ Montez v. Tonkawa Village Apartments, 215 Kan. 59, 64, 523 P.2d 351 (1974).
On appeal, CarMax argues that the Jones will not be prejudiced by reopening this suit because CarMax did not have any property belonging to NWS, so the Jones were not entitled to any money or property from CarMax. CarMax further notes that it offered to pay the Jones' attorney fees incurred in filing their motion for default judgment against CarMax. It appears the only prejudice the Jones would suffer in setting aside the default judgment would be to prove their case. This would require them to show that CarMax is a proper garnishee for the judgment against NWS. Nevertheless, prejudice is not shown merely by requiring the plaintiffs to proceed and prove their case. Montez, 215 Kan. at 65.
Next, to show that it has a meritorious defense, CarMax proffered that it did not have any business relationship with NWS and that it did not have any property belonging to NWS. The trial court did not address CarMax's meritorious defense argument because. it found that CarMax failed to show excusable neglect. The trial judge stated:
“I would say, at this point, I don't really have enough information to decide with any certainty the meritorious defense argument you make. The allegations you raise are that the plaintiffs [the Jones] in this case signed up for some extensions contract. I really don't have enough information to know what kind of privity there is between CarMax and NWS as far as those service contracts go. I really don't have to decide that today. If you want to proffer what that is for the record—“
CarMax's attorney responded as follows:
“It's in the affidavit that we submitted that said there is no business relationship. And the person that signed the affidavit is in charge of those contracts and and [sic] those relationships. So that's the evidence that we have is the person responsible at CarMax for dealing with third parties is saying under oath we have no relationship with National Warranty Service, never have, and didn't at this time.”
4
CarMax admits that the Jones originally purchased a car from CarMax that came with a 24–month warranty. Eighteen months after purchasing the car, the Jones purchased a separate warranty from NWS. CarMax argues that it did not have a business relationship or any contracts with NWS and that it is in no way affiliated with NWS. Attached to CarMax's motion to set aside default judgment, CarMax included the NWS service contract, which shows that the Jones purchased the warranty directly from NWS. CarMax also attached its answer of garnishee, which shows that it did not possess any property belonging to NWS. CarMax further notes that the Jones failed to dispute any of CarMax's evidence in their response to CarMax's motion. We note that the Jones failed to contend that CarMax's defense was not meritorious. In fact, the Jones did not even address the meritorious defense element in their brief. The only time the Jones mentioned the meritorious defense element was to simply acknowledge that the trial court did not decide this issue because CarMax had failed to show excusable neglect. Because the Jones failed to brief this issue, it is deemed waived and abandoned on appeal. See State v. McCaslin, 291 Kan. 697, 709, 245 P.3d 1030 (2011) (An issue not briefed is deemed waived and abandoned.).
Finally, CarMax argues that its lack of response to the order of garnishment was because of excusable neglect. The burden to show excusable neglect is on the party seeking an extension of the time limitation. Excusable neglect has no clear definition and must be determined on a case-by-case basis. Jenkins, 223 Kan. at 299.
“What constitutes excusable neglect under the statute must be determined by the trial court on a case by case basis under the facts presented in support of and in opposition to the enlargement of time. The trial court should consider the circumstances under which the neglect to act occurred as well as the effect of an enlargement upon the rights of all parties affected thereby.” Boyce v. Boyce, 206 Kan. 53, 55–56, 476 P.2d 625 (1970).
In Boyce, our Supreme Court found that the failure to timely file an answer to a garnishment order was excusable neglect where the bank's officer in charge of garnishment orders was on unexpected medical leave, another bank officer inadvertently filed the garnishment in the bank's vault and failed to pass on the order upon the first bank officer's return, and the bank held no funds subject to the garnishment order. 206 Kan. at 54–56. The facts in this case are similar to the facts in Boyce. In this case, like in Boyce, the garnishment order was inadvertently filed in the wrong place, and CarMax held no funds subject to the garnishment order.
The Boyce court further suggested that a party could show excusable neglect by providing evidence of good faith, establishing a reasonable excuse for the failure, and showing that the interests of justice could be served by granting the request. 206 Kan. at 56. Inexcusable conduct “implies something more than the unintentional inadvertence or neglect common to all who share the ordinary frailties of mankind.” Montez, 215 Kan. at 65.
CarMax contends that its failure to respond was unintentional and excusable. To explain its failure to respond, CarMax stated that the nonwage garnishment was mistakenly identified as a wage garnishment. As a result, the wage garnishment was sent to CarMax's payroll department, instead of the legal department. The payroll department, according to standard operating procedures, then forwarded the garnishment to its payroll vendor. CarMax's payroll vendor never notified CarMax that the garnishment order was a nonwage garnishment.
The trial court rejected CarMax's excusable neglect argument, finding that the system CarMax had in place was structurally flawed and that the level of nonreview of legal documents was such that the court could not find it to be excusable neglect. The trial judge stated:
“I don't think I can find that, based on the affidavits or anything that's been said today, that this was an intentional disregard, but I think it's a structural disregard or a structural problem that leads it to be the equivalent of just putting something in an inbox or putting it somewhere where it's not going to be taken care of in a timely manner.”
The trial court noted that the Jones made multiple attempts to try and engage CarMax in this case but that CarMax ignored every attempt. The trial court further explained that it may be understandable that the garnishment could get mislabeled and misplaced, but the trial judge could not find excusable neglect for CarMax's failure to respond to the notice of hearing and the motion for judgment, both of which were served on CarMax. The trial judge stated:
“Well, the biggest problem to me is that if somebody sends a notice of hearing, I don't care what level of non-review somebody's doing—either at payroll or anywhere else—at some point, somebody's got to realize a notice of hearing means that you guys are under the obligation to appear somewhere in Court. Like I said, if that hadn't been done, it might be different. But I think that's the thing that structurally, if there's nobody in place to review something that shows notice of hearing, they have to contact you or general counsel or somebody that, hey, we need to do something with this. Then that's the problem.”
The problem with the judge's reasoning is that while he admits that he cannot find an intentional disregard, i.e., a williul act, he still finds that it was inexcusable neglect. Even though one could find fault in CarMax for setting up such a system for receiving garnishments, it can hardly be characterized as reckless or inexcusable. Moreover, there are numerous factors that point to the conclusion that the judgment should be set aside: (1) While CarMax's action was neglectful, it can hardly be said to amount to “reckless indifference,” and as admitted by the trial judge, there appeared no element of willfulness; (2) No one in CarMax's legal department had any actual knowledge of the default judgment; (3) When knowledge of the default judgment was discovered, CarMax moved promptly (within 11 days); (4) CarMax moved to set aside the default judgment in approximately 2 months after it was entered; (5) The Jones cannot show any prejudice from setting aside the judgment; and (6) CarMax has a meritorious defense. And, as stated earlier, the Jones failed to contend that CarMax's defense was not meritorious. In fact, the Jones did not even address the meritorious defense or prejudice elements in their brief; they simply acknowledged that the trial court did not decide these issues because CarMax had failed to show excusable neglect.
When a trial court is presented with a motion to set aside judgment, any doubt should be resolved in favor of the petition to set aside the judgment. Montez, 215 Kan. at 65. When the neglect to answer was brought to CarMax's attention by the Jones' attorney, it promptly responded. It quickly filed a motion to set aside judgment. No inexcusable neglect or willful acts by CarMax led to the entry of default judgment. CarMax acted reasonably under the circumstances, and the principles of equity would be served by setting aside the default judgment. As a result, we determine that the trial court abused its discretion when it failed to set aside the Jones' default judgment against CarMax. Did the trial court have the authority to award attorney fees to the Jones?
Next, CarMax argues that the trial court did not have authority to award attorney fees under K.S.A. 60–741 because that statute does not extend to motions to set aside default judgments. We agree. Thus, we reverse the award of attorney fees.
Reversed and remanded with directions.