Title: First Southwestern Financial Services v. Laird

State: wyoming

Issuer: Wyoming Supreme Court

Document:

First Southwestern Financial Services v. Laird1994 WY 94882 P.2d 1211Case Number: 93-283Decided: 09/30/1994Supreme Court of Wyoming
FIRST 
SOUTHWESTERN FINANCIAL SERVICES,

Appellant 
(Plaintiff),

v.

James 
M. LAIRD, Sharon K. Laird, Mary Katherman and Willard S. 
Robinson,

Appellees 
(Defendants).

 

Appeal 
from District Court, Converse County, Barton R. Voigt, 
J.

 

Representing 
Appellant:

Camille 
A. Shillenn and Thomas M. Hogan, Casper.

Representing 
Appellees:

James 
R. McCarty, Casper, for appellees James M. Laird and Sharon K. 
Laird.

Barry 
G. Williams of Williams, Porter, Day & Neville, P.C., Casper, for appellees 
Mary Katherman and Willard S. Robinson.

 

Before 
GOLDEN, C.J., THOMAS, MACY and TAYLOR, JJ., and CARDINE, J. 
(Retired).

MACY, 
Justice.

[¶1]      Appellant First 
Southwestern Financial Services appeals from the district court's order which 
vacated the entries of default against Appellees James M. Laird and Sharon K. 
Laird and which dismissed the complaint because venue was not proper in Converse 
County.

[¶2]      We 
affirm.

ISSUES

[¶3]      First 
Southwestern presents four issues for our review:

A. 
In setting aside the Entry of Default of the Laird Defendants, was the District 
Court supported by the record and the case authority?

B. 
Does the "Second Claim For Relief" in the Complaint of the Plaintiff state a 
cause of action upon which relief can be granted concerning the foreclosure of 
the real estate mortgage? 

C. 
Did the District Court err in dismissing the Plaintiff's Complaint based upon a 
finding of improper venue?

D. 
Did the District Court have jurisdiction to entertain the affirmative defenses 
of the Laird Defendants?

FACTS

[¶4]      In 1985, the 
Lairds borrowed money from First National Bank of Glenrock, which loan was 
evidenced by a promissory note secured by a mortgage on agricultural real 
property located in Converse County. The Federal Deposit Insurance Corporation 
(FDIC) became the receiver of the bank later in that year.

[¶5]      After the Lairds 
failed to make payments on the debt, the FDIC foreclosed on the mortgage on the 
Converse County property. The FDIC was the successful bidder at the foreclosure 
sale of the property with a bid of less than the amount owed on the debt. The 
Lairds redeemed the property within the statutory redemption period and 
subsequently sold the property to Appellees Mary Katherman and Willard S. 
Robinson.

[¶6]      Through 
assignment, First Southwestern eventually succeeded to the FDIC's position with 
respect to the promissory note and the mortgage. The Lairds failed to pay the 
deficiency on the debt.

[¶7]      On January 21, 
1993, First Southwestern, seeking to collect the deficiency and/or to foreclose 
on the mortgage on the Converse County property, filed a complaint in the 
Converse County district court. On February 4, 1993, Katherman and Robinson were 
each served in Natrona County with a copy of the complaint and the summons. On 
February 11, 1993, the Lairds, alleging that venue in Converse County was 
improper and that the complaint failed to state a claim upon which relief could 
be granted, entered a special appearance and filed a motion to dismiss the 
complaint. Katherman and Robinson filed their answer on February 24, 1993. The 
Lairds were finally served in Natrona County on February 26, 1993. On March 5, 
1993, First Southwestern responded to the Lairds' motion to dismiss the 
complaint. No district judge was sitting in Converse County from January 22, 
1993, until April 7, 1993.

[¶8]      No further action 
was taken in the case until June 1, 1993. On that date, First Southwestern filed 
applications for default against the Lairds, together with affidavits which 
stated that the Lairds had failed to answer the complaint. The clerk entered a 
default on that same day against each of the Lairds. On June 1, 1993, the Lairds 
filed their answer, an objection to the entries of default, and a second motion 
to dismiss. The Lairds' filings were docketed before the entries of default were 
docketed.

[¶9]      On June 23, 1993, 
First Southwestern, claiming that the entries of default precluded such filings, 
moved to strike the Lairds' answer, objection to the entries of default, and 
motion to dismiss. The Lairds filed a motion on June 29, 1993, to set aside the 
entries of default.

[¶10]   After holding a hearing on the 
parties' motions, the district court vacated the entries of default against the 
Lairds. The district court found that the mortgage lien on the Converse County 
property had disappeared when the Lairds redeemed the property after the FDIC 
had foreclosed upon the mortgage. The district court, therefore, dismissed the 
complaint for lack of venue in Converse County because no property at issue was 
situated in that county and the defendants all resided in Natrona 
County.

DEFAULT

[¶11]   First Southwestern contends that 
the district court erred when it vacated the entries of default against the 
Lairds. Specifically, First Southwestern alleges that, pursuant to W.R.C.P. 
6(c)(2),1 the Lairds' motion to dismiss was 
deemed to be denied because the district court did not rule upon it within 
ninety days. First Southwestern argues that, after the ninety-day period had 
expired, the Lairds had ten days in which to serve their answer. First 
Southwestern concludes that, since the Lairds did not serve their answer within 
the ten-day period, they were in default.

[¶12]   We cannot agree with First 
Southwestern's argument. W.R.C.P. 55 applies to default situations. That rule 
provides in pertinent part as follows:

(a) 
Entry. - When a party against whom a judgment for affirmative relief is 
sought has failed to plead or otherwise defend as provided by these rules and 
that fact is made to appear by affidavit or otherwise, the clerk shall enter the 
party's default.

. 
. . .

(c) 
Setting aside default. - For good cause shown the court may set aside an 
entry of default. . . .

[¶13]   The clerk should not have entered 
the defaults against the Lairds. They pleaded or otherwise defended against 
First Southwestern's complaint by filing a motion to dismiss the 
complaint.

Failure 
to "otherwise defend" presumes the absence of some affirmative action on the 
part of a defendant which would operate as [a] bar to the satisfaction of the 
moving party's claim. In this context, it is generally held that challenges to 
matters such as service, venue and the sufficiency of the complaint preclude a 
default even if pursued in the absence of a responsive pleading. It is 
undisputed that a motion challenging a complaint for failure to state a claim 
upon which relief can be granted falls squarely within the ambit of the phrase 
"otherwise defend."

Rashidi 
v. Albright, 
818 F. Supp. 1354, 1355-56 (D.Nev. 1993) (citations omitted). See also 
Wickstrom v. Ebert, 101 F.R.D. 26, 32-33 (E.D.Wis. 
1984).

[¶14]   We are not convinced by First 
Southwestern's argument that the Lairds were in default because they did not 
respond within ten days after their motion to dismiss was deemed to have been 
denied pursuant to W.R.C.P. 6(c)(2). First Southwestern does not provide any 
authority for its interpretation of the rules, and we can find no case law which 
applies the rules of civil procedure in that way.

[¶15]   W.R.C.P. 55 provides that a default 
is available only when the party has not pleaded or otherwise defended. W.R.C.P. 
6(c)(2) states: "A party whose motion has been deemed denied shall have 10 days 
after the effective date of such denial to serve such pleadings or other papers, 
if any, as may be required or permitted." We do not believe that W.R.C.P. 
6(c)(2) demands the filing of an answer within ten days after a motion to 
dismiss is deemed to have been denied. Under such a holding, the clerk's duty 
would be expanded beyond that contemplated by W.R.C.P. 55. The clerk's duty 
under the rule is simply clerical. Vanasse v. Ramsay, 847 P.2d 993, 996 
(Wyo. 1993) (quoting Spitzer v. Spitzer, 777 P.2d 587, 592 (Wyo. 1989)). 
See also Lee v. Sage Creek Refining Co., Inc., 876 P.2d 997, 998 (Wyo. 
1994). If clerks were given the authority which First Southwestern has 
advocated, they would determine when a particular filing meets the requirement 
to "otherwise defend" under the rules, calculate when the motion would be deemed 
to have been denied, and decide the point at which the party failed to answer. 
We do not believe that clerks should have this much power in entering 
defaults.

[¶16]   First Southwestern could have 
requested that the district court order the Lairds to answer the complaint by a 
certain date. See, e.g., Adel v. Parkhurst, 681 P.2d 886, 888-89 (Wyo. 
1984). If the district court had entered such an order and the Lairds had failed 
to file their answer by the due date, First Southwestern could have requested 
that defaults be entered against the Lairds. Id. Because the defaults 
against the Lairds had been entered improperly, the district court did not err 
when it granted the Lairds' request to vacate the entries of default. Cf. 
Midway Oil Corporation v. Guess, 714 P.2d 339, 345 (Wyo. 1986) (when a 
default has been entered improperly, the district court has no discretion in 
granting the movant's request to vacate the entry).

[¶17]   Even had the defaults been 
correctly entered, the district court acted properly in setting aside the entry 
of default because the Lairds showed good cause under W.R.C.P. 55(c). A district 
court has wide discretion to set aside an entry of default. Vanasse, 847 P.2d  at 996. The district court's discretion will not be disturbed on appeal 
"`unless appellant demonstrates that the [district] court abused it and was 
clearly wrong.'" Id. (quoting Claassen v. Nord, 756 P.2d 189, 193 
(Wyo. 1988)).

[¶18]   As we stated in Vanasse, the 
three factors which are applied to determine whether a motion made under 
W.R.C.P. 60(b) should be granted may also be applied to determine whether the 
"good cause" standard of W.R.C.P. 55(c) has been met. Vanasse, 847 P.2d  
at 998; 6 JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE § 55.10[2] (1985). 
Under the three-factor test, we consider:

"`1. 
Whether the plaintiff will be prejudiced; 2. Whether the defendant has a 
meritorious defense; and 3. Whether culpable conduct of the defendant led to the 
default.'"

Carlson 
[v. Carlson], 
836 P.2d [297], 301-02 [(Wyo. 1992)] (quoting Amernational Indus., Inc. v. 
Action-Tungsram, Inc., 925 F.2d 970, 976 (6th Cir. 
1991)).

847 P.2d  at 998.

[¶19]   In this case, First Southwestern 
was not prejudiced when the district court set aside the entries of default 
against the Lairds. The Lairds filed their objection to the entries of default 
and their answer on the same day that First Southwestern applied for and 
received its entries of default. First Southwestern certainly could not have 
relied upon the entries of default to its detriment. Also, since the district 
court granted their motion to dismiss for improper venue, the Lairds obviously 
had a meritorious defense to the complaint.

The 
facts of this case show that the Lairds' failure to answer was not the result of 
culpable conduct. They had earlier filed a motion to dismiss the complaint, and, 
during much of the time that their motion was pending, no district judge was 
sitting in Converse County. A reasonable person could have assumed that, because 
of this unusual situation, no answer was yet necessary. The Lairds' lack of 
culpable conduct is also apparent from the fact that they filed their answer, 
second motion to dismiss, and objection to the entries of default on the same 
day that First Southwestern applied for and received its entries of default 
against them.

MORTGAGE 
AND VENUE

[¶20]   First Southwestern claims that the 
district court erred when it dismissed its complaint on the basis of lack of 
venue in Converse County. It argues that, pursuant to WYO. STAT. § 
1-5-101(a)(iii) (1988),2 venue was proper in Converse County 
because its complaint sought to foreclose upon a mortgage on real property 
located in that county. In support of its argument, First Southwestern contends 
that the mortgage was reinstated when the Lairds redeemed the property after the 
FDIC's foreclosure sale.

[¶21]   In its decision letter, the 
district court found as follows:

1. 
When a mortgagor redeems after a foreclosure sale, his legal and equitable title 
merge, and the mortgage lien "disappears."

2. 
The foreclosure sale and certificate of sale are null and void to such an extent 
that any junior liens or mortgages are revived, but the mortgage, itself, does 
not survive, and cannot be again foreclosed.

3. 
The mortgagee's remedy is to bid in at the foreclosure sale the full value of 
the property, thereby protecting in full his security interest in the property. 
Further, of course, the mortgagee may obtain a deficiency 
judgment.

4. 
Since the mortgage at issue did not survive the foreclosure sale and redemption, 
there is no real property at issue in Converse County, and the case is 
improperly venued here.

We 
hold that the district court's reasoning was correct and that the district court 
acted properly when it dismissed First Southwestern's complaint for want of 
venue in Converse County. In reviewing a dismissal of a complaint, we accept the 
facts stated in the complaint as being true and view them in the light most 
favorable to the plaintiff. R.D. v. W.H., 875 P.2d 26, 28 (Wyo. 1994) 
(quoting Herrig v. Herrig, 844 P.2d 487, 490 (Wyo. 
1992)).

[¶22]   After agricultural real property 
has been sold by virtue of a foreclosure by advertisement and sale, the 
mortgagor has one year in which to redeem the property. WYO. STAT. §§ 1-18-102 
to -103 (1988). Wyoming applies a lien theory to mortgages; a mortgagor has a 
statutory right to redeem the property after the mortgage has been foreclosed 
upon and the property has been sold at a foreclosure sale. Cliff & Co., 
Ltd. v. Anderson, 777 P.2d 595, 601 (Wyo. 1989); Fitch v. Buffalo Federal 
Savings and Loan Association, 751 P.2d 1309, 1311 (Wyo. 1988). The 
certificate of purchase which is presented to the successful bidder at the 
foreclosure sale is only a lien against, or an equitable interest in, the 
property. The legal title to the property remains with the mortgagor until the 
statutory redemption period has expired. Newman v. American National 
Bank, 780 P.2d 336, 339 (Wyo. 1989).

[¶23]   Section 1-18-103(a) states in 
pertinent part: "On payment of [the statutory redemption] amount the 
[foreclosure] sale and certificate [of purchase] granted are void." See also 
Powers v. Pense, 20 Wyo. 327, 337, 123 P. 925 (1912). Upon 
redemption,

a 
mortgagor acquires the equitable interest of the senior mortgagee before it 
ripens into legal ownership of the property[.] [The equitable] interest [then] 
merges with the mortgagor's legal title, and the senior mortgage ceases to 
exist.

Newman, 
780 P.2d  at 340. See also Powers, 20 Wyo. at 337, 123 P. 925.

"Joinder 
of the ownership in land and of the lien thereon in one person creates a merger 
and terminates the lien."

. 
. . .

Thompson 
on Real Property, § 4798 at 46 (1981 Supp.) (footnotes 
omitted).

780 P.2d  at 339.

[¶24]   The complaint reveals that the 
Lairds redeemed the property after the FDIC foreclosed upon its mortgage. Upon 
redemption, the Lairds acquired the FDIC's mortgage interest. At that point, the 
lien and the title to the property merged, and the mortgage ceased to exist. No 
mortgage existed for First Southwestern to foreclose upon.

[¶25]   Because First Southwestern no 
longer had any interest in the property situated in Converse County, the only 
venue statute which could have been applied in this case was WYO. STAT. § 
1-5-108 (1988), which provides in pertinent part:

Every 
action not otherwise provided for in this chapter shall be brought in the county 
in which a defendant resides or may be summoned. . . . If the action involves 
two (2) or more defendants, the action may be brought against all defendants in 
any county in which one (1) of the defendants resides or may be 
summoned.

Since 
all four of the defendants resided and were served in Natrona County, proper 
venue for the case was in Natrona County. The district court properly dismissed 
the case on the basis of improper venue. W.R.C.P. 12(b)(3).3 We do not, therefore, need to 
address First Southwestern's remaining issue. 

CONCLUSION

[¶26]   The district court properly vacated 
the entries of default against the Lairds and did not err when it dismissed the 
complaint for want of proper venue in Converse County.

[¶27]   Affirmed.

CARDINE, 
J. (Retired), files a specially concurring opinion.

CARDINE, 
Justice, Retired, specially concurring.

[¶28]   I concur in the disposition of this 
appeal and in the affirmance of the district court's order. I do not concur in 
that part of the court's opinion which holds that a motion not determined within 
90 days after filing is not deemed denied as provided in W.R.C.P. 6(c)(2) and 
does not require further pleading within ten days thereafter. Rule 6(c)(2) 
expressly so provides and for good reason. It has always been a consistent 
policy and purpose of our rules to move cases through the courts as 
expeditiously and at the least cost possible. Rule 6(c)(2) promotes that policy. 
It should be enforced as written.

[¶29]   Further, I cannot agree that any 
party should ever be required to affirmatively seek and obtain an order 
requiring another to answer. The answer to a complaint is always the burden of 
the answering party, and that obligation should never shift to the complaining 
party.

[¶30]   In summary, I would hold that at 
the expiration of 90 days the appellees' pending motion was denied per Rule 
6(c)(2). At that point, there was no responsive pleading in the case. Appellees 
had ten days thereafter to respond and, upon failure, were in default. I agree, 
nevertheless, in this case, for other proper reasons stated in the court's 
opinion, the entry of default was properly vacated.

Footnotes

1 W.R.C.P. 6(c)(2) provides:

(c) Motions and motion practice.

. . . .

(2) A request for hearing may be served by the moving party or any party 
affected by the motion within 30 days after service of the motion. Absent a 
timely request for hearing the court may, in its discretion, determine the 
motion without a hearing. A motion not determined within 90 days after filing 
shall be deemed denied. A party whose motion has been deemed denied shall have 
10 days after the effective date of such denial to serve such pleadings or other 
papers, if any, as may be required or permitted.

2 Section 1-5-101(a)(iii) provides:

(a) Actions for the following causes shall be brought in the county in 
which the subject of the action is situate, except as provided in W.S. 1-5-102 
and 1-5-103:

. . . . . .

(iii) For the sale of real property under a mortgage, lien or other 
encumbrance or charge.

3 First Southwestern argues that a complaint should not be dismissed 
simply because it is filed in the wrong county. We agree that normally a case 
should not be dismissed on the grounds of improper venue unless a statute 
specifically mandates such a dismissal. See Hronek v. Saint Joseph's 
Children's Home, 866 P.2d 1305, 1310 (Wyo. 1994) (quoting Larsen v. Hall 
Construction Company, 770 P.2d 1089, 1092 (Wyo. 1989)). Instead, "`the 
remedy with respect to questions of venue is a request to change venue to the 
proper court.'" Id.

However, dismissal for improper venue is not, per se, error. See 
Spriggs v. Copenhaver, 459 P.2d 203, 203 (Wyo. 1969) (per curiam), and 
W.R.C.P. 12(b)(3). The facts of this case reveal that dismissal was the proper 
remedy. The parties discussed the possibility of moving the case to Natrona 
County or to the federal court system, but they did not take any action in that 
regard.