No. 88-304
IN THE SUPREME COURT OF THE STATE OF MONTANA

ROBERT L. CRIRR and MARGARET

### V. CRIRR, husband & wife; M. BRUCE WRIGHT and SUSANWRIGHT, husband & wife; and RON HELLAND and JOAN HELLAND,husband and wife, onbehalf of all other stockholders of Glasgow Publishing Compan~, a Montana corporati.on, Plaintiffsand Respondents,-VSNATLOCK COMMUNICATIONS, INC., an Idaho corporation; GLASGOW PUBLISHING COMPANY, aMontana corp., COOSPAPERS, INC., an Oregon corp.; IDAHOBANK & TRIJST COMPANY, abanking corp.; and STEPHENJ. MATLOCK, individuallv and as PresidentofMatlock Communications, Inc., and Glasqow Publishing Company, Defendants and Appellants.

APPEAL FROM: District Court of the Seventeenth Judicial District, In and for the County ofValley, 

### TheHonorable Nat Allen, Judgepresiding.
COUNSEL OF RECORD: ForAppellant: Jardine, Stephenson, Rlewett & Weaver; GeorgeN McCabe, GreatFalls,Montana Gallagher,Archambeault & Knierim; MatthewW Knierim, Glasqow, Montana ForRespondent: Habedank,Cumming,Rest,Maltese & Savage; PeterIcr Maltese, Sidney,Montana 3 '.'-'a LI-, 

### 5 Q Submitted onBriefs: Nov. 17, Decided: January 30, 1989Mr. Justice R. C. McDonough delivered the Opinion of the Court.

This appeal from the Seventeenth Judicial District, in and for the County of Valley, concerns the District Court's denial of a motion to set aside an entry of default under Rule 55(c), M.R.Civ.P. The only issue is whether the lower court abused its discretion in denying the motion. F7e
reverse. The relevant facts are as follows: respondents Cribbs, and Wrights, (Cribbs) agreed to sell their stock in Glasgow PublishingCompany, a corporation,toMatlock Communications, Inc., owned by Stephen J. Matlock. Cribbs exchanged the company's stock for promissory notes and other consideration from Matlock. The parties placed the stock in escrow to secure the debt owed on thenotes. Cribbs reqained control of the company when Matlock Communications failed to make the required payments. Crihhs then sued Matlack and Matlock Communications farmoney still dueunder the salesagreement. Cribbs joined appellant Idaho Bank and Trust Company (I.B. & T.) becauseMatlock had secured a loan from I.R. €i T. with assets owned by Glasgow Publishing Company. Crihhs' complaint contended thatMatlock had no authority to encumher the assets, and sought a judgment voiding the security interestclaimed by I.B. & T. On December 22, 1986, Cribbs served summons and complaint on I.B. & T.'s main downtown branch office in Boise, Idaho. I.B. & T. failed to answer or appear within 30 days. On February 5, 1987,the clerk entered default against I.B. & T. On March 6, 1987, before Cribbs had takkn any final iudqment, I.R. & T. filed a motion to set aside the

### default, a crossclaim, a counterclaim, and a third party complaint. I.B. & 

### T. also submitted affidavits explaining their failureto respond to Cribbs' complaint. An employee in I.B. & 

### T.'s branch of£ice swore that he delivered the papers to another employee for transfer to the main I.B. & T. 

### office through the Rank's courier system. The other employee remembered receiving the papers with instructions for their delivery, but could not verify if she had channelled the papers into the courier system. The summons and complaint never arrived at themain office. I.R. & 

### T. discovered their failure to answer or appear approximately one week after the clerk entered the default. One month after the entry of default I.B. & T. 

### filed its motion, answer, crossclaim, counterclaim and third party complaint.

I.B. & 

### T. contends that the District Court abused its discretion in refusing to set aside the entry of default because I.B. & T. 

### made the showing of good cause required by Rule 55(c),M.R.Civ.P. Cribbsrespond thatRule 55(c)'sgood
cause should be equated with "excusable neglect" in Rule 60(b),M.R.Civ.P, and that I.B. & 

### T. has failed to excuse its late response. The parties also disagree on whether I.B. & 

### T.'s tardy response prejudiced Cribbs.

First, Cribbs mistakenly contend good cause under Rule 55(c), M.R.c~v.P., equates to excusable neglect under Rule 60(b), M.R.Civ.P. Rule 55(c), M.R.Civ.P., provides that:

For good cause shown the court may set side an entry of default and, if a judgmentby default has been entered, may likewise set it aside in accordancewith Rule 60(b).Themajority viewholds that:

the "good cause" standard for setting aside a default entry is more flexibleand lenient than the Rule 60(b) standard for setting aside a default judgment. 6 J. Moore, Moore's FederalPractice ¶ 55.10[1] and [2] (2d ed. 1983): 

# .

# .. The default entry is simply an interlocu~orvorder that in itself determines no rights or remedies, whereas the default judgment is a final judgment that terminates the litigation and decides the dispute.
Hertz v. Berzanske (Alaska 1985), 704 P.2d 767, 770. We agree that the good cause standard under Rule 55(c)

## , M.R.Civ.P., should be applied more flexibly and leniently than the excusable neglect standard under Rule 60(b), M.R.Civ.P. Second,we hold that 

### I.R. & T.made a sufficientshowing of good cause in the lower court. Todetermine the existence of good cause,courts should consider:

(1) whether the default was willful, (2)whether the plaintiff would be prejudiced if the default should be set aside, and (3)whether thedefendant has presented a meritorious defense to plaintiff's claim. The court must also balance the interests of the defendant in the adiudication ofhis defense on themerits, against the interests of thepublic and the court in the orderly and timely administration of justice.

6J. Moore,Moore's FederalPractice T 55.10[21, at 55-59 (?d ed. 1988)

## , and see Sony Corp. 

### v. Elm State Electronics, Inc.

(2nd Cir. 1986), 800 F.2d 317, 320 (in addition to three factors above, courts may consider whether therewas a good faith mistake, whether a harsh or large judgment would result, the strongpreference for adjudication on the merits, and resolution of douhts in favor of granting motion to set aside).I.R. & T. submitted affidavits that its failure to respond resulted from clerical error. Facing similar facts,
one 

### U.S. District Court agreed to set aside an entrv of default stating:

The Court, of course, is not condoning the filing of a late answer, yet it is reluctant to enter a default judgmentwhere, as here, there was not wilful abuse of its process nor apparent prejudice to theplaintiff. Wallace v. De Werd (D. 

### V.I. 1969), 47 F.R.D. 4, 5. Here there is also a lack of willful abuse of the lower court's process and a lack of apparentprejudice. Cribbs argue that prejudice exists because reversal will further delay the
case. F7e reject this contention. Prejudice from delay should be measured at the time the party moves to set aside
an entry ofdefault. Weighing the third factor in this case presents more difficulty. Cribbs contend I.B. & T. has failed to show a meritorious defense because Matlock could not have had authority to encumber the assets of Glasgow Publishing Company. I.B. & T. contends that the documents creating the security interest are regular on their face,and thatMatlock provided documentation demonstrating that he was authorized toborrow forGlasgowPublishing Company as the Corporation's sole director. I.B. & T. also contends that the security agreement may be validated by the allegation that Glasgow Publishing Company received a monetary benefit from loans authorized by Matlock. Cribbs have responded to these contentions by arguing that Matlock never properly hecame sole director of the corporation, and that none of the proceeds of the loans benefited Glasgow PublishingCompanv.Cribbs have presented evidence supporting their position. However, resolution of doubt in finding a meritorious case should be resolved in favor of 

### I.B. & T. Meehan

### v. Snow (2ndCir. 1981), 652F.2d 274, 277. I.B. & T. has alleged factswhich, if proven,provide a defense. Appellate courts reverse refusals to set aside entries of default on a showing of slight abuse of discretion by the lower court. 6 J. Moore,Moores Federal Practice 9 55.10[2], at 55-59. Given the lack of willfulness, prejudice, and the presence of factual allegations supportinga defense,we hold that the District Court abused its discretion in denying the motion. We reverse and remand for further proceedings.

We Concur:

JusticesMr. Justice L. 

### C. Gulhrandson,dissenting.

In my view, the appellant failed to present 

### a meritorious defense. Even a cursory examination by the appellant of the documentation provided by Matlock, as the purported sole director of the Glasgow Publishing Company, would have revealed non-compliance with the requirements of the pertinent Montana statutes, including S 35-1-413 and 5 35-1-808, MCA. Iwould affirm the District Court'sordeq/