No. 92-090 

### IN THE SUPREME COURT OF THE STATE OF MONTANA 1993

EMPIRE LATH & PLASTER, INC.,

v. AMERICAN READING, Plaintiff and Respondent,

CASUALTY COMPANY OF PENNSYLVANIA

## ,

Defendant and Appellant.

APPEAL FROM: District Court of the ThirteenthJudicial District, In and for the County 

### of Yellowstone, The Honorable Russell 

### K. Fillner,Judge presiding.

COUNSEL OF RECORD: For Appellant: 

### Richard J. Andriolo, 

### Berg, Lilly, Andriolo & Tollefsen, Bozeman, Montana For Respondent: 

### P. 

### Bruce Harper, Attorney 

### at Law, ~illings, Montana

Submitted 

### on Briefs: May 28, 1992 Decided: February 11, 1993 Filed:Justice Terry N. Trieweilerdelivered the opinion of the Court. DefendantAmerican Casualty Company of Reading, Pennsylvania (American Casualty)

### ,appeals fromadefault judgment of $58,049.40, entered 

### in favor of Empire Lath & Plaster, Inc, (~mpire)on November 6, 1991, in the Thirteenth Judicial District Court, Yellowstone County. ~merican Casualty's subsequent motion to set aside the 

### judgment was deemed 

### denied pursuant to Rule 60(c), M.R.Civ.P., 

### when the ~istrict Court failed to 

### rule on the motion within 45 days. We affirm. The sole issue for our consideration is whether the District Court abused its discretion when it did not grant American Casualtyls motion to set aside the default judgment. This litigation arises out of a construction contract associated with the building of the Billings Parking Garage and City Hall Expansion Project. InApril 1990, the City of Billings awarded the general contract for the construction project to C & D Contractors, Inc. (CD), and CD thereafter subcontracted 

### a portion of the project to Empire. 

### Inconnection with thegeneral contract,


### abond 

### inexcess of $3 million

### was executedby

### American Casualty to guarantee payment to subcontractors 

### for labor, material, and equipment supplied during the constructionproject. ~mpire completed its portion of the work on April 16, 1991, and submitted its final billing statement to CDwhich reflected an unpaidbalance due Empire totalling $47,124.96. Inaddition to the amount owed under the subcontract, Empire had performed a "changeorderat 

### fortheproject whichhad been authorizedby CD and approved by the project architect, at a cost of $1,200.00. At the sametimeEmpire submitted its final statement,CD sent

a letter to Empire confirmingthe outstandingbalance due under the contract, but asserting that ~mpirehad failed to 'ldiligently pursue its work in 

### a timely manner. CD claimed this failure to properly perform under the contract delayed the entire project and resulted 

### in significant additional costs to CD. No further facts nor specifics were everprovided to ~mpire in regard to the alleged contract breach. After computing the costs which it alleged were a result of Empireasdelay, CD determined it would withhold $31,576.00, and tendered a check to Empire for $15,548.96. The check contained a restrictive endorsement which provided that ~mpire'sendorsement would acknowledge final and conclusive payment for all work performed, and would release CD from any further liability under the subcontract. Empire refused to execute the check due to the restrictions, and insisted 

### on either full payment, or payment of the uncontested sum of $15,548.96,with an understanding that the parties would attempt to resolve the dispute over the remaining amount. Empire received no payments from CD, and on July 2, 1991, Empire submitted anotice to the city of Billings, CD,andAmerican Casualty (as the 

### surety for the project), stating that 

### it had a claim of $47,124.96 against the bond for the work performed under the subcontract,and also for the $1,200.00incurred forthe changeorder. Empire received no response from either CD or ~merican Casualty regarding the claim notice. OnAugust 14, 1991, ~mpire filed

### a complaint in ~istrict Court against American Casualty in order to collect the outstanding balance owed to 

### Empire which was 

### guaranteed by the bond. 

### This civil action was filed in Yellowstone County as required by provisions contained in the bond; CD was not named 

### as a defendant in the casebecause the subcontract between CD and Empire required

venue in Lewis and Clark county. The summons and complaint were served on American Casualtylslegal department 

### onAugust 23, 1991. TheClaims Analyst for~merican Casualty immediately forwarded the summonsand complaint to CD, along with a letter tendering the defense of the action to CD as was apparently standard practice. Although American Casualty was in communication 

### with CD on other matters, Empire's pending lawsuit was never discussed, and CD asserts that it had no knowledge of the action nor ever received American Casualty's letter tendering the defense of the action to CD. TheDistrict Court,based onan affidavit fromthe supervising architect of the construction project, found that Empire had fully and competentlyperformed the requirements of the subcontract in a timelymanner, and that there was no basis towithhold fullpayment to Empire. The court concluded that Empire had complied with all conditions required by the bond, and was, therefore, entitled to

recover from American Casualty under the bond. The court entered

a default judgment against American Casualty 

### on November 6, 1991,for $58,049.40,which represented the contract amount due Empire, plus interest, the $1,200.00 incident to the change order, and attorney fees and costs of $170.39. The following day, American Casualty discovered that the default judgment had been entered and that no appearance had been made 

### by CD on behalf of the surety. On November 14, 1991,American Casualtymoved to set aside the default judgment, filed its answer to the complaint, and requested a trial on the merits. The District Court did not rule on the motion within 45 days from the time it was filed, and the motion was, therefore, deemed denied pursuant toRule 60(c), M.R.Civ.P. From thisdenial of themotion to set aside the default judgment,American Casualty appeals. The issue presented is whether the District Court abused its discretion when it did not set aside the default judgment. American Casualty argues that the court shouldhave granted relief from the judgment under Rule 55(c), M.R.Civ.P., which allows for the setting aside of a default judgment: For good cause shown the courtmay set aside an entry of default and, if a judgmentby default has been entered, may likewise set it aside in accordancewith Rule 60(b). Rule 60(b), M.R.Civ.P., states in pertinent part: Onmotion and upon such terms as are just,the courtmay relieve aparty or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect 

# . . . or (6) any other reason justifying relief from the operation of the judgment. Where a trial court fails to grant a motion to set aside a default judgment, the finding of even a slight abuse of discretion

### is sufficientto justify reversal of 

### such an order. BoardofDirectors EdelweksOwnerswAssn.v.Mclntosh 

### (1991), 251 Mont. 144, 

### 822 P.2d 1080. In

### Lorhv.Newman (19841, 

### 212 Mont. 359, 363, 688 

### P.2d 290, 293,we emphasized two basic tenets to be considered in setting aside default judgments: (1) every 

### litigated case shouldbe tried on its merits and judgments by 

### default are not favored; and 

### (2) trial courts have 

### a certain amount of discretion when considering a motion to 

### set aside 

### a default judgment. We 

### have also clearly stated that the burden of proof rests on the party seeking to set aside the default judgment. Siewingv.PearsonCo+ 

### (1987), 226 Mont. 458, 461, 

### 736 P.2d 120, 122. After considering these factors and 

### applying the appropriate 

### standard of review to the present case, we conclude that the 

### District Courtdid not abuse its discretion when it failed togrant American Casualtyts motion. American Casualty contends that 

### the failure to file an 

### answer
was excusable neglect, and it 

### is, therefore, entitled 

### to relief 

### from the 

### judgment pursuant to Rule 6O(b), M.R.Civ.P. However, in In reManicrge of Castor (19911, 249 

### Mont. 495, 817 

### P.2d 665, we emphasized that "mistake,"inadvertence," and Itexcusableneglectw generally require some justification for 

### an error beyond mere carelessness or ignorance of the 

### law. Castor, 

### 817 P.2d at 667



### (citingLomas

### andNertIeton Co. v. Wieiey (7th Cir. 1989), 884 F.2d 965, 967). In 

### this instance, we conclude that American Casualtylsneglectwas not justifiedand that the criteria of Rule 60(b) have not been satisfied. The bonding company asserts that it was standard practice to have CD take over the defense of actions filed against American Casualty. American Casualty then maintains that after notifying CD, the claims analyst kept the complaintwith other active files because she waspurportedly monitoring negotiationsbetween Empire and CD. This resulted in the normal calendaring procedure being overlooked and, consequently,American Casualty did not check to

see that a timely responsehad been filed. Furthermore, CD claims it never received the tender letter, and attributes this to the fact that CD was moving its offices and reducing office personnel at the time the letter was sent. Based onBlume

### v.Metropolitan LifeInsuranceCompany (1990)

## , 242 Mont

# . 465, 791P.2d 784,where this Court found the district court abused its discretion when it refused to vacate a default judgment, American Casualty suggests the neglect in this situation is also inadvertent and excusable. InBlume, certified mail containing a

summons and complaint was delivered to the defendant company,but

was apparently lost before anyone in a position of authority saw it. After reviewing the record in this case,however,we conclude that the neglect demonstrated by both American Casualty and CD is not comparable to the inadvertence we excused inBlume. UnlikeBlume, where the defendant companywas unaware that the plaintiff was seriously considering filing suit and had no reasonto suspect that a court appearance was necessary, neitherAmerican Casualty nor CD can profess ignorance of Empire's intention to pursue recovery under thebond. 

### When Empire refused to execute the check for $15,548.96 because acceptance of this check would have released CD from further liability under the subcontract, CD was fully aware that Empire was challenging the unilateral withholding of payments. Empire then complied with the required notice provisions prior to filing its complaint, thusgiving both American Casualty and CD written notice of its claim against the bond and intent to seek recovery. The record showsthatAmerican Casualtywasput onnotice that Empire would assert its rights under the bond directly against the bonding company aminimum of five times prior to the filing of the complaint, and unlike the defendant in Blume, the appropriate personnel did receive a copy of the summons and complaint. While it may have been reasonable to assign CD the responsibility of responding to Empire's complaint,American Casualty cannot justify its failure to follow-up on the matter. This is particularly true in light of the following statement made in the August 27, 1991 tender letter: Please acknowledge your acceptance of this tender of defense prior to the answer date and furnish the undersigned with a copy of the answer. As the only defendant named in the case,American Casualty had the responsibility to follow-up on its own request and insure that CD received and accepted the tender, and was preparing 

### an appearance on American Casualty's behalf.The neglect demonstrated in this case was not like the unintentional oversight inBlume, and 

### is,therefore, not excusable.
In addition to finding excusable neglect, the judgment of 

### a district court can be set aside for "any other reason justifying relief from the operation of the judgment.It Rule 60(b)(6)

## , M.R.Civ.P. Generally, relief is afforded under this subsection only inextraordinarysituationswhen circumstancesgobeyond those covered specifically in Rule 60(b)

# . Castor, 817 P.2d at 668;

### Fuller

v.

### Quire (6th Cir. l990), 916 F.2d 358, 360. After reviewing the record,we conclude thatAmerican Casualtyhas failed to establish any other reason which would justify relief from the operation of the default judgment. We hold the District Court did not abuse its discretion when it did not grant 

### the motion to set aside the judgment entered againstAmerican Casualty. Affinned.

We concur: