Opinion
Docket No. 23744
Filed May 4, 1998 Affirmed in part; reversed in part. See Montane Resource Assoc. v. Greene, 132 Idaho 458, March 10, 1999.
Appeal from the District Court of the Sixth Judicial District, State of Idaho, Power County. Hon. Peter D. McDermott, District Judge.
Order denying motion to set aside default judgment,affirmed.
Lowell N. Hawkes, Chtd., Pocatello and Nicholas E. Hales, Salt Lake City, Utah, for appellant. Lowell N. Hawkes and Nicholas E. Hales argued.
Dial, Looze May, Pocatello, for respondent. Trevor L. Castleton, legal intern, argued.
This is an appeal from the district court's denial of a motion to set aside a default judgment. We conclude that the district court did not abuse its discretion in denying the motion.
FACTS AND PROCEDURAL BACKGROUND
In January of 1995, the appellant, Heber Jacobsen, purchased a parcel of wooded land in Power County, Idaho ("the land") from Richard and Linda Greene. He then leased the land back to the Greenes giving them an option to re-purchase at a later date. The Greenes apparently had contracted with respondent Montane Resource Associates (Montane) to log timber on the land during periods before and after the sale of the land to Jacobsen. On September 1, 1995, Montane recorded a logger's lien on the land pursuant to I.C. §§ 45-401 through 45-416 to secure its claim for payment for services rendered between June 1, 1994 and July 3, 1995. According to the record, Jacobsen played no role in employing Montane and did not authorize any agreement with Montane to perform services on the land. In the spring of 1996, Jacobsen sold his interest in the land to Mr. and Mrs. Bingham. The Binghams' purchase was made expressly subject to Montane's lien.
Montane evidently made a demand on Jacobsen for payment of the amount secured by the logger's lien, and Jacobsen consulted with an attorney who, in February 1996, communicated with Montane's attorney and informed Montane's attorney that Jacobsen contested the claim. In April 1996, Montane filed a complaint seeking a personal judgment against Jacobsen and the Greenes and requesting foreclosure of the logger's lien on the land. The complaint was personally served on Jacobsen. Although he had an attorney representing him in the matter, Jacobsen did not consult his attorney, nor did he file an appearance or an answer to the complaint. Consequently, on July 15, 1996, the district court entered a default judgment against Jacobsen in an amount exceeding $15,000. Jacobsen then filed a motion to set aside the default judgment, asserting that no factual or legal basis existed to support a personal judgment against him. The district court denied the motion. On appeal before this Court, Jacobsen argues that the district court abused its discretion when it declined to set aside the default judgment.
ANALYSIS
A. Timeliness of the Appeal
Preliminarily, we must address Montane's assertion that the appeal should be dismissed as untimely. Montane contends that because Jacobsen did not file a notice of appeal from the July 15, 1996, default judgment within forty-two days after its entry, the appeal is untimely under I.A.R. 14(b). Montane's argument misapprehends the very nature of this appeal. Jacobsen is not appealing the default judgment itself. Rather, he is appealing from the district court's order denying Jacobsen's motion to set aside the judgment. Idaho Appellate Rule 14 specifies that a notice of appeal must be filed within forty-two days after the filing of the "judgment, order, or decree" from which the appeal is taken. (Emphasis added). For this appeal, which challenges only the post-judgment order denying Jacobsen's motion, it was the filing of the order which marked the start of the forty-two day appeal period. Jacobsen allowed only three days to pass before he filed his notice of appeal from that order. His appeal is therefore timely.
B. Default Judgment
We now turn to Jacobsen's contention that the district court abused its discretion when it denied his motion to set aside the default judgment. Jacobsen's motion sought to have the judgment vacated pursuant to I.R.C.P. 60(b)(1) on the ground of excusable neglect. A motion to set aside a default judgment under this rule is committed to the sound discretion of the trial court, and we therefore will not disturb the trial court's order in the absence of an abuse of discretion. Clear Springs Trout Co., v. Anthony, 123 Idaho 141, 143, 845 P.2d 559, 561 (1993); Tyler v. Keeney, 128 Idaho 524, 526, 915 P.2d 1382, 1384 (Ct.App. 1996).
A party seeking relief from a default judgment under I.R.C.P. 60(b)(1) on the basis of excusable neglect must meet two requirements. First, the movant must demonstrate that the default resulted from excusable neglect and, second, the movant must plead facts which would constitute a meritorious defense. Clear Springs Trout Co., supra; Reeves v. Wisenor, 102 Idaho 271, 629 P.2d 667 (1981); Full Circle, Inc. v. Schilling, 108 Idaho 634, 637, 701 P.2d 254, 257 (Ct.App. 1985); Excusable neglect is "a factual question . . . which 'must be answered by examining what might be expected of a reasonably prudent person under similar circumstances.'"
State v. One 1990 Geo Metro, 126 Idaho 675, 680, 889 P.2d 109, 114 (Ct.App. 1995) quoting Herzinger v. Lockwood Corp., 109 Idaho 18, 19, 704 P.2d 350, 351 (Ct.App. 1985). Thus, on appeal we examine the district court's determination as to whether the litigant "engaged in conduct which, although constituting neglect, was nevertheless excusable because a reasonably prudent person might have done the same thing under the circumstances." Schraufnagel v. Quinowski, 113 Idaho 753, 754, 747 P.2d 775, 776 (Ct.App. 1987).
Jacobsen contends that excusable neglect was shown by his affidavit filed in support of his motion to set aside the judgment. According to the affidavit, Jacobsen did not realize that the complaint sought to hold him personally liable for the alleged debt but thought that it only sought foreclosure of the logger's lien. We conclude that this belief, though perhaps genuinely held, cannot be deemed reasonable. The complaint plainly alleges a claim against all of the defendants for a money judgment together with interest, costs and attorney fees. Moreover, since Montane had made a demand upon Jacobsen for payment before filing suit, Jacobsen was already on notice that Montane was looking to him, as well as the Greenes, for payment.
Jacobsen's affidavit also explained that he did not respond to Montane's complaint because he believed that he had several rightful defenses and therefore could not be liable to Montane. He believed he could not be held liable to Montane because: (a) he never employed Montane for work on the land nor consented to the Greenes' contract with Montane, (b) most of the services for which Montane sought compensation were performed before he owned the land, (c) and he had sold the property to the Binghams who had expressly taken the property subject to the lien. It is evident from this explanation that Jacobsen's failure to respond to Montane's complaint was the result of his own erroneous legal conclusions. Jacobsen apparently believed that if Montane did not possess a valid basis to recover from him, a money judgment against him would not be issued, even if he made no appearance and presented no defense.
Such an error of law does not demonstrate excusable neglect. We think this case to be analogous to Hearst Corp. v. Keller, 100 Idaho 10, 592 P.2d 66 (1979), where the defendant, offering a reason for having made no appearance in the action before a default judgment was entered, explained that he was unaware of the rules requiring answers and counterclaims to be filed within twenty days of service. Our Supreme Court found this explanation insufficient to warrant setting aside the judgment:
A mistake sufficient to warrant setting aside a default judgment must be of fact and not of law. Neglect must be excusable and, to be of that calibre, must be conduct that might be expected of a reasonably prudent person under the same circumstances. . . .
Defendant's affidavit herein offers as his mistake or excusable neglect only his statement that he was unaware of the strict requirements of the rules requiring answer and counterclaim to be made within twenty days of service. He offers no reason for reaching such a conclusion in view of the plain wording of the summons to the contrary. There is no plea that he could not read or understand, or was in any way distracted by other urgent matters. If he mistook the law such a mistake is not sufficient. If he decided the wording of the summons did not mean what it plainly said, such neglect was not the act of a reasonable person under like circumstances and was therefore not excusable.
Id. at 11-12, 592 P.2d at 67-68. In a similar case, Newbold v. Arvidson, 105 Idaho 663, 672 P.2d 231 (1983), the Idaho Supreme Court held that a defendant's lack of understanding of his legal obligation upon being served with a complaint was a mistake of law which did not justify setting aside the default judgment. The Court stated, "The law cannot excuse willful ignorance but imposes an obligation on such a person to seek out assistance of legal counsel." Id. at 664, 672 P.2d at 232. See also Washington Fed. Sav. v. Transamerica, 124 Idaho 913, 917, 865 P.2d 1004, 1008 (Ct. App. 1993) (holding "that ignorance of the law or rules of civil procedure are [sic] generally inexcusable.").
Here, instead of contacting his attorney, Jacobsen relied on his own erroneous belief that he did not have to answer Montane's complaint because he had what he considered to be a valid defense. This was a mistake of law which we do not view to be that of a reasonably prudent person. Although Jacobsen has pleaded a meritorious defense to the complaint, he has not shown excusable neglect. Therefore, he has not satisfied the requirements for relief from the judgment, and the district court did not abuse its discretion in denying Jacobsen's motion to set the judgment aside.
ATTORNEY FEES
Montane has requested attorney fees on appeal pursuant to Idaho Code Sections 12-120, 12-121 and 45-413. Because we conclude that Montane is entitled to attorney fees under Section 12-120(3), we need not consider the applicability of the remaining statutes.
Idaho Code Section 12-120(3) mandates an award of attorney fees to the prevailing party in any civil action for recovery based upon a commercial transaction. This mandate extends to the award of attorney fees on appeal. Farm Credit Bank of Spokane v. Stevenson, 125 Idaho 270, 275, 869 P.2d 1365, 1370 (1994); Bott v. Idaho State Bldg. Auth., 122 Idaho 471, 481, 835 P.2d 1282, 1292 (1992); Dennett v. Kuenzli, ___ Idaho __, __, 936 P.2d 219, 229 (Ct.App. 1997). "Commercial transaction" is defined under the statute as "all transactions except transactions for personal or household purposes." I.C. § 12-120(3). "The test for application of this statutory directive is 'whether the commercial transaction comprises the gravamen of the lawsuit, that is, whether the commercial transaction is integral to the claim and constitutes the basis upon which the party is attempting to recover.'" Dennett, ___ Idaho at ___, 936 P.2d at 229 (quoting Spence v. Howell, 126 Idaho 763, 776, 890 P.2d 714, 727 (1995)). Montane's complaint alleges a claim for recovery on a contract with the defendants under which Montane "provided labor and assistance preparing timber for sale." This alleges a commercial transaction.
Consequently, Montane, as the prevailing party, is entitled to attorney fees.
CONCLUSION
The explanation given by Jacobsen for his failure to answer Montane's complaint does not demonstrate excusable neglect. Accordingly, we hold that the district court did not abuse its discretion when it denied Jacobsen's motion to set aside the default judgment. The order of the district court is affirmed. Costs and attorney fees on appeal are awarded to respondent.
Judge PERRY CONCURS.
I am constrained to file this dissent, although I do so with some misgivings. The defaulted party, Heber Jacobsen, was clearly neglectful and inadvertent in failing to contact his counsel after being served with the summons and complaint; of this, there can be no argument. In addition, I would not want to leave the impression that a defendant with a plausible meritorious defense need not answer nor respond prior to entry of default judgment, yet still automatically expect relief through IRCP 60(b).
Nevertheless, there are countervailing considerations which, I feel, militate towards relief in this case. Not only does it appear that Jacobsen has a compelling meritorious defense to personal liability, it further appears that Montane Resources had no reasonable basis to include him in its complaint in the first place, other than as a potential owner of the property in terms of its logger's lien foreclosure. Prior to entry of the default judgment, Jacobsen had already sold his interest in the land, with the buyers on notice of and taking subject to the lien to the extent it might be deemed valid. The complaint itself is hardly a model of clarity insofar as the personal liability of Jacobsen is concerned. It never mentions Jacobsen by name other than to include him, along with one Greene, as "the reputed owners of the real property." Only Greene is referred to as the one entering into an agreement for labor and assistance in preparing the timber for sale. Montane never asserts it had any direct dealing with Jacobsen, or that Greene was authorized to act as an agent or partner for him. Within this context, I see Jacobsen's neglect as implicating issues of fact as well as law, and would find such neglect to be excusable under the circumstances.
The trial court made an oral finding that Jacobsen had made a mistake of fact here, but that it was not excusable.
Given this overview of the case, I am more inclined to apply the rationale of Johnson v. Pioneer Title Co., 104 Idaho 727, 662 P.2d 1171 (Ct.App. 1983) rather than Hearst, supra. This is a close case, and I would favor the general rule in doubtful situations to grant relief in order to reach a judgment on the merits. This would be especially so where a defaulted party makes such a compelling showing on the meritorious defense issue. Rule 60(b) allows the court to grant relief on such terms as are just, which in this case could certainly include Montane's costs and attorneys fees in obtaining the default judgment and arguing the motion. But to grant Montane a personal judgment by default herein can amount to a windfall; such a legal penalty does not, in my opinion, fit Jacobsen's offense of neglect, mistake or inadvertence.
I respectfully dissent and would reverse the order denying Rule 60(b) relief, but on such terms as the trial court deems just.