Opinion
No. 109,246.
2013-11-8
FIRST GENERAL SERVICES OF KANSAS CITY, INC., Appellant, v. Jimmy NEDROW and Shirley Nedrow, Appellees.
Appeal from Wyandotte District Court; William P. Mahoney, Judge. J. Michael Adams and Patrick M. Reidy, of Monaco, Sanders, Gotfredson, Racine & Barber, L.C., of Kansas City, Missouri, for appellant. Kyle A, Branson, of Gillette Law Firm, P.A., of Mission, for appellees.
Appeal from Wyandotte District Court; William P. Mahoney, Judge.
J. Michael Adams and Patrick M. Reidy, of Monaco, Sanders, Gotfredson, Racine & Barber, L.C., of Kansas City, Missouri, for appellant. Kyle A, Branson, of Gillette Law Firm, P.A., of Mission, for appellees.
Before LEBEN, P.J., GREEN and STANDRIDGE, JJ.
MEMORANDUM OPINION
PER CURIAM.
First General Services of Kansas City, Inc. (First General), appeals from the district court's journal entry of judgment by default dated October 21, 2011, and the court's subsequent memorandum opinion filed November 20, 2012, denying First General's motion to set aside that default judgment. For the reasons stated below, we affirm the district court's order granting default judgment but vacate the award of damages for that judgment and remand with directions for the district court to schedule a hearing to determine the appropriate amount of damages after Jimmy and Shirley Nedrow (the Nedrows) give First General notice of such a hearing as required by K.S.A.2012 Supp. 60–254(c) and Supreme Court Rule 118(d) (2011 Kan. Ct. R. Annot. 209).
Facts
On April 24, 2008, First General filed a petition for damages in the District Court of Wyandotte County Limited Actions Department claiming the Nedrows refused to make full payment for labor and materials supplied by First General in repairing fire damage and making other repairs. Specifically, First General asserted the Nedrows caused damages and were unjustly enriched in the amount of $24,882.16. On May 27, 2008, the Nedrows filed their answer and counterclaim for $60,000 in damages for money spent to repair and replace First General's work, which the Nedrows claimed was substandard. The Nedrows also requested reimbursement in the amount of $20,000 for property allegedly stolen by First General's employees and $15,000 for attorney fees. The case was transferred in July 2008 from the limited actions department to the district court to be handled as a Chapter 60 case.
On July 24, 2009, the Nedrows submitted their first request for production of documents. On July 28, 2009, a notice of service regarding the Nedrows' first request for discovery to First General was filed, indicating it was sent to First General's counsel at an address on East 101st Terrace in Kansas City, Missouri. First General never responded to the discovery request, so the Nedrows filed a motion to compel on December 23, 2009, which was faxed to First General's counsel. The district court granted this motion to compel on January 22, 2010. The Nedrows asserted in their motion to compel, as well as in a later response, that they had sent a “golden rule letter” to First General's counsel on October 8, 2009, although the record does not contain such a letter.
On August 22, 2011, the Nedrows filed a “Motion for Judgment upon Defendants' Answer and Counterclaim for Failure of Plaintiff to Respond to Defendants' Discovery Requests.” The certificate of service attached to this motion indicated that it was mailed to First General's counsel at the East 101st Terrace address. However, in an affidavit, First General's counsel said his firm had moved from the East 101st Terrace address to a new office at East 104th Street in Kansas City, Missouri, on July 12, 2010. Counsel further stated he received the Nedrows' motion for judgment via fax on August 22, 2011, and participated in the status conference the following day as a result of a phone call received from the Nedrows' counsel. At this August 23 conference, the district court granted First General an additional 10 days within which to submit responses to the Nedrows' discovery. That same day, First General's counsel emailed his firm's new address to the court clerk.
After First General still did not file any discovery responses, the Nedrows filed a “Second Motion for Judgment upon Defendants' Answer and Counterclaim for Failure of Plaintiff to Respond to Defendants' Discovery Requests” on September 14, 2011. A hearing on this motion was set for October 21, 2011, but First General claims it did not receive notice of the hearing because it had been sent to First General's counsel's old address. The certificate of service attached to the Nedrows' second motion showed that it was mailed to First General's counsel's old East 101st Terrace address.
After the October 21 hearing, the district court issued a journal entry noting that First General made no appearance and “[the Nedrows] are entitled to judgment.” It ordered:
“[The Nedrows] are granted judgment against [First General] for the prayer in their counterclaim in the amount of $75,000.00, and that [the Nedrows] be granted attorneys fees in the amount of $15,000.00 and the costs of this action.”
As First General points out, however, this journal entry fails to expressly state that there was no just reason for delay or to expressly state that First General's claims against the Nedrows had been disposed of. Nonetheless, the case was closed on November 29, 2011, after First General failed to respond to the journal entry.
The Nedrows attempted to collect on the judgment by filing an order to appear for a hearing in aid of execution on June 5, 2012, and a second order to appear for a hearing in aid of execution on July 18, 2012. In his affidavit, First General's counsel stated he first learned of the default judgment entered against his client on June 18, 2012. On September 20, 2012, First General filed a motion to quash the order to appear and a motion to set aside the October 21, 2011, judgment alleging it was not a valid final judgment. It claimed the journal entry was not a final judgment because it did not adjudicate all the claims or rights of all the parties and did not expressly determine there was no just reason for delay. It further claimed even if the judgment was final, the district court could provide relief from the judgment due to surprise or excusable neglect because First General was not properly served with notice of the October 21, 2011, hearing. The Nedrows filed a response to these motions on October 24, 2012.
After a hearing on November 5, 2012, the district court issued a memorandum opinion on November 20, 2012, finding the judgment was final because there was no reason to explicitly state there was no just reason for delay in the journal entry and the judgment resolved all the claims between the parties. It also found no evidence of excusable neglect by First General. The district court declined to allow First General to provide evidence of damages at that late date given it had refused to produce such evidence through discovery and held the existing evidence was sufficient to sustain the award of damages. Finally, the court concluded that the award of attorney fees was proper given First General's noncompliance during discovery.
Analysis
In its notice of appeal filed on December 21, 2012, First General specifies that it is appealing from the journal entry dated October 21, 2011, and filed November 2, 2011, and the court's subsequent memorandum opinion filed November 20, 2012. Before we can address the issues presented for analysis, we must first determine the jurisdictional boundaries within which our review of those issues will be confined.
The right to appeal in Kansas is statutory. Appeals must be taken in the manner prescribed by statute; otherwise, the appellate court lacks jurisdiction. Butler County R.W.D. No. 8 v. Yates, 275 Kan. 291, 299, 64 P.3d 357 (2003). A timely notice of appeal must be filed within 30 days from the “entry of the judgment.” K.S.A.2012 Supp. 60–2103(a). In this case, the following dates are relevant to the scope of our authority to address the issues presented by First General:
10/21/2011: Default Judgment against First General
11/02/2011: Journal Entry of 10/21/2011 Default Judgment
09/20/2012: First General's Motion to Set Aside 10/21/2011 Default Judgment
11/20/2012: Court's Order Denying Motion to Set Aside Default Judgment
12/21/2012: First General's Notice of Appeal
The chronology above reflects that First General filed its notice of appeal 30 days after the court's order denying First General's motion to set aside default judgment; thus, it appears we have jurisdiction to review the issues presented by First General on appeal that relate to the court's November 20, 2012, decision to deny the motion to set aside. But the December 21, 2012, notice specifies that First General also is appealing from the October 21, 2011, underlying journal entry of default, a judgment that was entered over a year before the notice of appeal was filed. If, as it appears from these dates, the notice of appeal was untimely filed as to the October 21, 2011, default judgment, we do not have jurisdiction to review the issues presented by First General on appeal relating to the court's decision on October 21, 2011, to enter that default judgment.
But First General argues its notice of appeal from the underlying default judgment was timely filed. In support of this argument, First General contends the October 21, 2011, journal entry was not a final judgment under K.S.A.2012 Supp. 60–2102(a)(4) and, in the absence of an express determination that there was no just reason for delay pursuant to K.S.A.2012 Supp. 60–254(b), it was only after the court disposed of all claims in its November 20, 2012, order that an appeal could have been taken.
K.S.A.2012 Supp. 60–2102(a)(4) provides that the appellate jurisdiction of the Court of Appeals may be invoked by appeal as a matter of right from a final decision in any action, except in an action where a direct appeal to the Supreme Court is required by law. Our Supreme Court has defined a final order as “ “ ‘one which finally decides and disposes of the entire merits of the controversy, and reserves no further questions or directions for the future or further action of the court.’ “ “ Kansas Medical Mut. Ins. Co. v. Svaty, 291 Kan. 597, 610, 244 P.3d 642 (2010).
Initially, the district court's October 21, 2011, journal entry appears somewhat ambiguous as to whether it constitutes a final judgment under Kansas law. As First General points out, the journal entry grants the Nedrows “judgment against [First General] for the prayer in their counterclaim” and does not refer to First General's claim against the Nedrows. Nonetheless, other wording in the journal entry strongly suggests the district court made a final judgment as to both claims. First, the district court referred to the Nedrows' motion as a “motion for judgment on the pleadings,” not as a motion for judgment upon the counterclaim only. The Nedrows' motion itself was titled “Motion for Judgment Upon Defendants' Answer and Counterclaim for Failure of Plaintiff to Respond to Defendants' Discovery Requests,” which further implies the district court ruled on First General's claim against the Nedrows as well as the Nedrows' counterclaim. Second, the district court's journal entry stated simply, “[The Nedrows] are entitled to judgment,” with no qualification limiting the judgment to only their counterclaim. Third, the certified copy of the appearance docket sheet contained in the record on appeal reflects that this case was terminated on October 21, 2011, after a bench trial where judgment was reached and that the case was closed on November 29, 2011, after First General failed to respond to the October 21, 2011, journal entry terminating the case. Fourth, the district court confirmed in its November 20, 2012, memorandum opinion on First General's motion to set aside the judgment that the October 21, 2011, judgment “resolved all claims between First General and the Nedrows.” Because the same district court judge that entered the October 21, 2011, default judgment presided over the hearing on First General's motion to set aside default judgment and issued the November 20, 2012, memorandum opinion denying that motion, we pay deference to that confirmation.
For all of these reasons, we conclude the October 21, 2011, journal entry in this case was a final judgment that disposed of the entire merits of the controversy and reserved no further questions for the future. Our conclusion renders First General's argument under K.S.A.2012 Supp. 60–254(b) futile, as that subsection of the statute is applicable only when the district court directs entry of a final judgment as to one or more, but fewer than all, claims that are pending in a particular case. More importantly, our conclusion also renders the notice of appeal filed by First General on December 21, 2012, untimely filed as to the October 21, 2011, default judgment. Accordingly, we do not have jurisdiction to review the issues presented on appeal that relate to the court's October 21, 2011, judgment of default, which necessarily means we are limited to reviewing the issues presented on appeal in the context of the district court's November 20, 2012, memorandum opinion denying First General's motion to set aside default judgment.
Although the decision to set aside a default judgment rests within the discretion of the trial court, the inclination to do so must be tempered by the principle that default judgments are not favored in law and that the court should resolve any doubt in favor of deciding a case on its merits. Bazine State Bank v. Pawnee Prod. Serv., Inc., 245 Kan. 490, 495, 781 P.2d 1077 (1989), cert. denied495 U.S. 932 (1990). Nonetheless, the district court's decision to set aside a default judgment is generally reviewed for an abuse of discretion. First Management v. Topeka Investment Group, 47 Kan.App.2d 233, 239, 277 P.3d 1150 (2012). A judicial action constitutes an abuse of discretion if the action (1) is arbitrary, fanciful, or unreasonable; (2) is based on an error of law; or (3) is based on an error of fact. Critchfield Physical Therapy v. The Taranto Group, Inc., 293 Kan. 285, 292, 263 P.3d 767 (2011). An abuse of discretion also occurs if discretion is guided by an erroneous legal conclusion or goes outside the framework of or fails to consider proper statutory limitations or legal standards. O'Brien v. Leegin Creative Leather Products, Inc ., 294 Kan. 318, 331, 277 P.3d 1062 (2012). Discretion is abused only if no reasonable person would take the view adopted by the trial court. If reasonable persons could differ regarding the propriety of the action taken by the trial court, it cannot be said that the trial court abused its discretion. Shay v. Kansas Dept. of Transportation, 265 Kan. 191, 194, 959 P.2d 849 (1998). The party asserting the trial court abused its discretion bears the burden of showing such abuse of discretion. Harsch v. Miller, 288 Kan. 280, 293, 200 P.3d 467 (2009).
Having set forth the applicable standard of review, we turn now to the legal standards governing the motion to set aside judgment filed by First General.
“On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order or proceeding for the following reasons:
(1) Mistake, inadvertence, surprise or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under subsection (b) of K.S.A. 60–259, and amendments thereto;
(3) fraud, whether previously called intrinsic or extrinsic, misrepresentation or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or
(6) any other reason that justifies relief.” K.S.A.2012 Supp. 60–260(b).
To that end, First General claims the district court abused its discretion in denying its motion to set aside the default judgment in favor of the Nedrows on grounds that
• the court failed to consider less severe discovery sanctions authorized by K.S.A.2012 Supp. 60–237(b)(2)(A)(iv) before entering its October 21, 2011, order granting default judgment;
• the court failed to verify that the Nedrows properly served First General with notice of the October 21, 2011, default hearing before entering its October 21, 2011, order granting default; and
• the court failed to hold a hearing to determine the amount of damages due and owing before entering its October 21, 2011, order granting default judgment, notwithstanding the fact that the motion for default judgment sought unliquidated damages.
We address each of First General's claims in turn.
1. Less severe discovery sanctions
First General argues no reasonable judge would have denied the motion to set aside the judgment in this case because default judgment as punishment for a discovery violation is an extraordinarily severe sanction that should be used only when other lesser sanctions would be insufficient under the circumstances. It appears First General relies on the catchall provision in K.S.A.2012 Supp. 60–260(b)(6) to make this argument.
The imposition of sanctions for failure to comply with discovery orders is a matter within the district court's discretion and will not be disturbed unless that discretion has been abused. Shay, 265 Kan. at 194. The discovery rules were promulgated to expedite litigation, to safeguard against surprise, to prevent delay, and to expedite and facilitate both preparation and trial. Vickers v. City of Kansas City, 216 Kan. 84, 90, 531 P.2d 113 (1975). Under K.S.A.2012 Supp. 60–237, the trial judge has the ability to sanction parties who fail to comply with the discovery rules. A party seeking discovery may move for an order compelling a disclosure from another party. K.S.A.2012 Supp. 60–237(a). The district court may then order the other party to comply with that discovery request. If that party fails to comply with the district court's discovery order, the court may issue sanctions on that party. K.S.A.2012 Supp. 60–237(b). The trial judge is empowered to impose such sanctions as are just under K.S.A.2012 Supp. 60–237(b)(2), which lists several possible sanctions that a court may impose on a disobedient party, including “ ‘rendering a judgment by default against the disobedient party.’ “ Fields v. Stauffer Publications, Inc., 2 Kan.App.2d 323, 328, 578 P.2d 1138,rev. denied 225 Kan. 843 (1978).
Our Supreme Court has issued several opinions in which it has analyzed whether a district court abused its discretion by granting default judgment as a discovery sanction. In one opinion, the district court was held not to have acted arbitrarily in granting default judgment as a discovery sanction when it did so after holding an evidentiary hearing to consider the assertion that the offending party made a good faith effort to comply with the court's discovery order. See, e.g., Lorson v. Falcon Coach, Inc., 214 Kan. 670, 678–79, 522 P.2d 449 (1974). In this case, First General was given an opportunity at the August 23, 2011, hearing on the Nedrows' first motion for judgment to inform the court of any good faith effort it had made over the past 19 months to comply with the court's January 22, 2010, order granting the Nedrows' motion to compel discovery.
Although the law favors adjudication on the merits of the case and disfavors default judgments, default judgments are necessary when the inaction by one party frustrates the administration of justice. Jenkins v. Arnold, 223 Kan. 298, 299, 573 P.2d 1013 (1978). Nonetheless, sanctions should be designed to accomplish the objects of discovery rather than for the purpose of punishment. Shay, 265 Kan. at 194; see Fields, 2 Kan.App.2d at 328. And, as First General asserts, the dismissal of a cause of action is a drastic remedy to impose as a discovery sanction and should be used as a last resort when other lesser sanctions are clearly insufficient to accomplish the desired outcome. Canaan v. Bartee, 272 Kan. 720, 727, 35 P.3d 841 (2001). But, again, where a party fails to comply with the district court's order due to inability to do so rather than bad faith, a severe sanction, such as dismissal or default, probably would be inappropriate. Canaan, 272 Kan. at 727;cf. Vickers, 216 Kan. at 93 (stringent sanction is appropriate when party deliberately disregards discovery order); Deutsche Bank Nat'l Trust Co. v. Sumner, 44 Kan.App.2d 851, 862–67, 245 P.3d 1057 (2010) (when party continually fails to respond to discovery requests, alternative sanctions again may not be sufficient), rev, denied 292 Kan. 964 (2011); Fields, 2 Kan.App.2d at 329 (when information sought is not provided upon request and only available through other party, dismissal or default may be the only useful sanction).
The Canaan court laid out a three-part test, drawing on previous court decisions, to determine whether a district court abused its discretion in granting default judgment for failure to comply with discovery orders: “(1) Does the discoverable material go to a dispositive issue in the case? (2) Are alternative sanctions sufficient to protect the party seeking discovery available? and (3) Is the requested information merely cumulative or corroborative? [Citations omitted.]” Canaan, 272 Kan. at 727–28. In that case, the defendant's attorney lied to the court and did not keep his clients informed. The court concluded under its test that the district court could have imposed lesser sanctions first or, instead, sanctions against the attorney. 272 Kan. at 730–31. In Shay, the court likewise found that other lesser sanctions should have been used by the district court before granting default judgment where party and attorney changes caused a new plaintiff to be confused and fail to comply with discovery orders. 265 Kan. at 196.
Here, First General cites to Shay in support of its argument that lesser sanctions should have been utilized by the court, rather than the last resort of default judgment, because the purpose of sanctions is to compel discovery and not to punish. While First General cites useful caselaw, it ignores the repetitive nature of its own dilatory conduct. On July 24, 2009, the Nedrows served discovery requests upon First General. First General's responses to the first discovery requests were due on August 24, 2009. The Nedrows assert that on October 8, 2009, they contacted First General requesting a response. On December 23, 2009, having never received a response, the Nedrows filed a motion to compel with the district court. On January 22, 2010, the district court granted this motion to compel. On August 22, 2011—almost exactly 19 months after First General received the court's order compelling it to respond to the Nedrows' request for discovery—the Nedrows filed its first motion for judgment on the pleadings based on First General's failure to respond to the discovery. At a conference call with both parties the following day, the district court used its discretion to deny the Nedrows' motion and grant First General 10 more days to comply with the discovery requests. But First General did not respond to the requests. On September 14, 2011, the Nedrows filed their second motion for judgment on the pleadings, which the court ultimately granted on October 21, 2011.
Although First General asserts it did not receive notice of the October 21, 2011, hearing, First General has never claimed that it made a good faith effort over the 19–month time period from January 22, 2010, through August 23, 2011, to comply with the court's order requiring it to produce the requested discovery. Likewise, First General has never claimed that it made a good faith effort to produce the discovery in the 10–day grace period the district court provided to First General after the August 23, 2011, hearing on the Nedrows' first motion for judgment on the pleadings. And finally, although First General learned on June 18, 2012, that default judgment had been entered against it, First General did not file its motion to set that judgment aside until September 20, 2012.
When a party continually is noncompliant with discovery requests, it is much more likely that a reasonable person would agree with a district court's decision to enter default judgment against that party, which in turn would mean the district court did not abuse its discretion in making such a decision. See Sumner, 44 Kan.App.2d. at 862–67 (When a pattern of conduct exists, lesser sanctions may not be sufficient.). In this case, it is unlikely that lesser sanctions would have been sufficient to protect the Nedrows. Although the better practice is for the district court to issue a show cause order to warn a noncompliant party that a default judgment may result from its continued noncompliance, the Nedrows twice made a motion for judgment on the pleadings in this case and the court convened a hearing on the first motion and gave First General a limited 10–day grace period to comply with its order. See 44 Kan.App.2d at 869. Consequently, First General was aware of the threat of a default judgment, even without a formal show cause order.
Unfortunately, looking at the other prongs of the Canaan test, the record is not useful in determining whether the information requested is dispositive. There is no copy of the Nedrows' request for production of documents so there is no indication what information the Nedrows were requesting. As such, while it is plausible First General is likely the only source of some information the Nedrows requested, it is equally unclear from the record whether the information was merely corroborative or cumulative.
Nevertheless, the district court's decision is reasonable under the second Canaan prong when viewed in light of the substantial length of time that had passed in which First General repeatedly refused to comply with the Nedrows' discovery requests and the district court's discovery orders. Alternative sanctions likely would have been ineffective; thus, we find the district court did not abuse its discretion in ordering default judgment in lieu of lesser sanctions.
2. Excusable neglect
Relying on K.S.A.2012 Supp. 60–260(b)(l), First General contends the fact that it was not properly served with notice of the October 21, 2011, hearing necessarily renders its failure to attend the hearing a circumstance due to surprise and/or excusable neglect that justifies relief from default judgment entered on that day.
To show excusable neglect justifying setting aside a judgment, the moving party must establish: (1) the party having obtained the judgment will not be prejudiced by reopening the case; (2) the defaulting party can advance a meritorious defense; and (3) the default was not the result of inexcusable neglect or willful conduct. State ex rel. Stovall v. Alivio, 275 Kan. 169, 172–73, 61 P.3d 687 (2003); First Nat'l Bank in Belleville v. Sankey Motors, Inc., 41 Kan.App.2d 629, 634, 204 P.3d 1167 (2009). While all three requirements must be met for an appeal to be successful, the vast majority of cases under K.S.A.2012 Supp. 60–260(b) focus on the term “excusable neglect” and, its counterpart, “inexcusable neglect.” Mid Kansas Fed'l Savings & Loan Ass'n v. Burke, 233 Kan. 796, 799–800, 666 P.2d 203 (1983); First Management, 47 Kan.App.2d at 240.
Kansas courts have not articulated a definition for “excusable neglect” as the phrase is not susceptible to a clear definition. Instead, courts determine what constitutes excusable neglect on a case-by-case basis based on the circumstances presented. Jenkins, 223 Kan. at 299. Nevertheless, the appellate courts in Kansas generally have held “inexcusable neglect” to be similar to “reckless indifference” and thus to imply something more than unintentional inadvertence or neglect common to all who share the ordinary frailties of mankind. 223 Kan. at 299. One factor courts take into account when considering this issue is that litigants generally should not be punished for the simple neglect of their agent. First Management, 47 Kan.App.2d at 240. Kansas courts have found excusable neglect due to an agent misplacing service papers as well as when a defendant's attorney miscalculated the answer period and failed to plead by the correct date. Montez v. Tonkawa Village Apartments, 215 Kan. 59, 65, 523 P.2d 351 (1974) (service was made on corporate landlord via resident manager of apartment complex, manager misplaced papers without notifying anyone connected with corporate landlord, and landlord took prompt action upon knowledge of suit); see Jenkins, 223 Kan. at 300–01.
In this case, First General argues its failure to appear at the October 21, 2011, hearing was due to excusable neglect and therefore justifies setting aside the default judgment entered on that day. In support of this argument, First General contends the Nedrows' second motion for judgment was mailed to the old address of its counsel's law firm and thus, it was never notified of the hearing.
As First General contends, its firm moved locations on July 12, 2010, and its mail was forwarded for a limited time period, which appears in this case to be about 1 year. On August, 22, 2011, counsel for First General received the Nedrows' first motion for judgment via fax and the following day took part in a conference call concerning the motion. On the same date as the call, First General's counsel notified the district court clerk of the address change. A hearing on the Nedrows' second motion was set for October 21, 2011, but the Nedrows' second motion and attached notice of this hearing were sent to First General's counsel's old address. First General's counsel never appeared at the October 21, 2011, hearing. Counsel later stated that he did not learn that a judgment had been entered against First General until June 18, 2012.
In its memorandum opinion denying First General's motion to set aside the judgment, the district court found “no excusable neglect in this case.” The court noted that it was First General's and its counsel's responsibility as litigants and attorneys to maintain accurate records of their current addresses and contact information with the clerk and the State and that they had a duty to inform other parties and courts in pending litigation of any address changes. It went on to state that the address change also did not explain First General's failure to answer the motion to compel or to participate at all in discovery for months, observing in particular that First General was “on notice that the Court had given them until September 2, 2011 to do something and nothing was done.”
The chain of events regarding the address change might lead one to believe that First General's failure to appear at the October 21 hearing was a result of inadvertence; First General and its counsel were simply unlucky, the mail just did not get to the right people. In order to hold such a belief, however, one would have to blatantly disregard First General's dilatory conduct after First General managed to avoid default judgment upon the Nedrows' first motion and secure—after 19 months of noncompliance with the court's January 22, 2010, order granting the Nedrows' motion to compel discovery—an additional 10–day grace period in which to comply. It appears from the record provided on appeal that neither First General nor its counsel took action in this case from the time of the conference call on August 23, 2011, until September 20, 2012. Both counsel and First General should have expected that the district court would enter judgment against First General after its failure to produce the discovery requested within the 10–day grace period. And, although First General's counsel repeatedly asserts that notice of the October 21, 2011, hearing was mailed to the old address, conspicuously missing from counsel is an assertion that counsel did not receive the October 21, 2011, judge's entry of default or the November 2, 2011, journal entry of judgment at the new address, an address which counsel purports to have provided to the court clerk on August 23, 2011. And, although First General alleges it finally discovered that a judgment had been entered against it on June 18, 2012, it took another 3 months before the motion to set aside the judgment was filed.
We find the district court did not abuse its discretion in denying First General's motion to set aside default based on inexcusable neglect. And even if this court were to find that First General's acts constituted only excusable neglect, First General has not argued it had a meritorious defense or explained why setting aside the default judgment would not prejudice the Nedrows—two requirements that also must be met to set aside a default judgment.
3. Hearing on damages
Finally, First General claims the district court's failure to hold a hearing to assess the proper damages in default in conjunction with the lack of any evidence to support the damages assessed by the court justifies relief from the default judgment. First General further claims the district court's failure to comply with the requirement in Supreme Court Rule 118(d) (2011 Kan. Ct. R. Annot. 209) that 14 days' notice be given before default judgment is issued also justifies relief.
Although these issues do not appear in the motion to set aside judgment First General filed with the district court, it evidently raised the issue at the November 5, 2012, hearing on that motion because the district court discussed it in its memorandum opinion “after reviewing the pleadings, case file and hearing the arguments of [counsel].”
K.S.A.2012 Supp. 60–254(c) provides that in an action in which the petition “states only that the amount sought as damages is in excess of $75,000, without demanding a specific amount of money ... the party seeking relief must notify the party against whom relief is sought of the amount of money for which judgment will be taken.” The notice must be sent “by return receipt delivery, or as the court orders, at least 14 days before the date judgment is sought.” K.S.A.2012 Supp. 60–254(c). Similarly, Supreme Court Rule 118(d) (2011 Kan. Ct. R. Annot. 209) contains substantially the same requirement and further requires that “[p]roof of service shall be filed and submitted to the court.”
This court has held that “compliance with Rule 118(d) is mandatory.” Universal Modular Structures, Inc. v. Forrest, 11 Kan.App.2d 298, 300, 720 P.2d 1121 (1986). And the “provisions of Rule 118(d) apply when default judgment is sought on any pleading of unliquidated damages.” Winner v. Flory, 11 Kan.App.2d 263, 265, 719 P.2d 20 (1986). “Failure to comply with Rule 118 renders a resulting default judgment voidable.” Sankey Motors, Inc., 41 Kan.App.2d at 639.
Like K.S.A.2012 Supp. 60–254(c), however, Kansas courts also have held that the provisions of Rule 118(d) do not apply when default judgment is sought on any pleading of liquidated damages. A claim becomes liquidated when both the amount due and the date on which it is due are fixed and certain or when the same becomes definitely ascertainable by mathematical computation. Sankey Motors, Inc., 41 Kan.App.2d 629, Syl. ¶ 9. In Sankey Motors, Inc., the court determined the damages claimed were unliquidated because there was no documentation in the record from which a “fixed and certain” amount due could be reconstructed. 41 Kan.App.2d at 643. The court therefore concluded the party seeking default judgment was required to comply with Rule 118(d), which it did not do. Thus, the court held the default judgment was voidable and, because the defendant challenged the default judgment under Rule 118(d), thereafter declared the judgment void. 41 Kan.App.2d at 644–45.
Even if unliquidated, however, a hearing to determine the amount of damages is not necessary if the motion for a default judgment specifies the amount the district court is requested to award and the nonanswering party knows the exact amount claimed and never questioned the amount. See Bazine State Bank v. Pawnee Prod. Serv ., Inc., 245 Kan. 490, 493–94, 781 P.2d 1077 (1989), cert. denied495 U.S. 932 (1990). With that said, however, Kansas courts have held that where the nonanswering party fails to appear or answer and the party moving for default judgment seeks unliquidated damages, an entry of default judgment made without any evidence having been introduced to show the amount of damages sustained is irregular and voidable. Becker v. Roothe, 184 Kan. 830, 834, 339 P.2d 292 (1959). For example, the Kansas Supreme Court held in Becker that judgment should have been entered for only nominal damages where no evidence as to the amount of damages was introduced at the time default judgment was entered. 184 Kan. at 832.
Here, the counterclaim filed by the Nedrows did not demand a specific amount of money. Rather, it submitted a general request for $60,000 in damages for money spent to repair and replace First General's work and $20,000 in reimbursement for property allegedly stolen by First General's employees. And in both of their motions for judgment for First General's failure to respond to discovery requests, the Nedrows prayed for judgment in the amount of $75,000 and for the costs of the action. As such, the Nedrows sought unliquidated damages.
In denying First General's motion to set aside default judgment, however, the district court appeared to distinguish the facts presented in this case because it involved a default judgment upon a party's failure to respond to discovery, not a regular default judgment on the pleadings. Nonetheless, the only other Kansas cases similar to these facts in which damages were awarded as part of a default judgment imposed for discovery violations indicate that the usual rules for default judgments should apply in this case. In Wenger v. Wenger, 239 Kan. 56, 58–59, 716 P.2d 550 (1986), the district court awarded the plaintiffs a default judgment of $38,616 for the defendants' failure to comply with the discovery rules and the court's discovery orders. The plaintiffs had filed a motion for summary judgment and request for sanctions requesting a judgment of $38,616, even though their original prayer of petition only sought $2,306.81 plus additional amounts as might be disclosed by the requested accounting. The defendants claimed on appeal that the district court was restricted to awarding only the damages prayed for in the “ ‘demand for judgment’ “ under K.S.A. 60–254(c). 239 Kan. at 58–59. The Kansas Supreme Court quoted the district court's decision stating: “The default judgment entered herein may well not be the one that would have been entered had this matter gone to trial on the merits of the claims of the parties.” ‘ 239 Kan. at 59. It also noted the defendants had control of the records relating to the issues of the case but failed to comply with discovery for several years. Our Supreme Court concluded that the “judgment rendered was well within the discretion of the court and does not run afoul of K.S.A. 60–254(c).” 239 Kan. at 59. Thus, our Supreme Court expressly found K.S.A. 60–254(c) applies to default judgments entered as discovery sanctions. The Wenger decision further indicates that a district court may award damages in a default judgment discovery sanction not just based on the amount in the requesting party's original petition, but also the amount requested in its later motion for judgment.
In Prather v. Olson, 1 Kan.App.2d 142, 145, 562 P.2d 142 (1977), the district court entered a judgment against the defendant for $20,423 as a sanction for willful noncompliance with the court's production order. The defendant asserted on appeal that the trial court erred in awarding the full amount of damages sought because there was insufficient evidence of the loss suffered. A panel of this court disagreed upon finding the district court conducted a hearing on the entire matter and referenced the parties' depositions in which the plaintiff explained his calculation of damages. 1 Kan.App.2d at 148–49. The panel held: “In view of the foregoing we cannot say the court acted improperly.” 1 Kan. App, 2d at 149. Nonetheless, the panel reduced the amount awarded based on the plaintiffs testimony, in which he admitted the amount due was $18,023. Specifically, the panel stated “we think sanctions should not be imposed beyond any amount subsequently claimed ... in his testimony.” 1 Kan.App.2d at 149. Therefore, a district court may award damages in a default judgment discovery sanction based on the pleadings and any other information presented to the court prior to the entry of default judgment.
In declining to allow First General to provide evidence of damages after the judgment of default already had been entered, the court noted that “the award of $75,000 was based on the amounts set forth in the pleadings as the cost to repair the home of the Nedrows which is the subject of this action.” Although the district court found there was no need for evidence on the damages because the parties all knew the amounts paid, what the contract called for, and the value of services involved in repairing the property, we find no evidence in the record to support the amounts awarded. Because there is no proof of service to show that the notice required by K.S.A.2012 Supp. 60–254(c) and Rule 118(d) was given to First General at least 14 days prior to the hearing to determine the amount of unliquidated damages claimed in this matter and because the district court's judgment of default was entered without any evidence having been introduced to show the amount of damages sustained, we find the default judgment here is voidable.
In so finding, we acknowledge that both of the Nedrows' motions for judgment specified the amount requested as $75,000 as required under Bazine State Bank for a court to award damages without a hearing. But First General cannot be said to have never questioned that amount, which is also required under Bazine State Bank. In its reply to the answer and counterclaim, First General denied the allegations that its employees stole $20,000 worth of the Nedrows' property and that the estimated cost of repairing the work done by First General was $60,000. Thus, the district court erred in finding in its memorandum opinion that there was no need for evidence on the damages because “all the parties had known ... the value of the services involved in repairing and repainting [the Nedrows'] property.” Because First General disputed the amount of the damages claimed by the Nedrows, the district court should have held a hearing to determine the amount of the damages to be awarded.
Because the district court abused its discretion in failing to hold a hearing to receive evidence on the amount of damages to be awarded, the court should have vacated the award of damages granted in the default judgment and scheduled a hearing for the sole purpose of determining the appropriate amount of damages after the Nedrows gave First General notice as required by K.S.A.2012 Supp. 60–254(c) and Rule 118(d). Accordingly, we must vacate the award of damages and remand this matter with directions for the district court to do so.
For the reasons stated above, we affirm the district court's order granting default judgment but vacate the award of damages for that judgment and remand with directions for the district court to schedule a hearing to determine the appropriate amount of damages after the Nedrows give First General notice of such a hearing as required by K.S.A.2012 Supp. 60–254(c) and Rule 118(d).