DA 11
- 0234 IN THE SUPREME COURT OF THE STATE OF MONTANA

2011 MT 298
JULIA BENINTENDI, JOEY PERKEREWICZ, and SARAH PERKEREWICZ, f/k/a SARAH BUSHNELL, Plaintiffs and Appellants,
v. JESSE HEIN and TERA HEIN, Defendants and Appellees.

APPEAL FROM: District Court of the Thirteenth Judicial District,

In and For the County of Yellowstone, Cause No. DV 09

- 467 Honorable Ingrid Gustafson, Presiding Judge COUNSEL OF RECORD:

For Appellant: W. Sco tt Green , Patten, Peterman, Bekkedahl & Green, PLLC, Billings, Montana For Appellee: Jack E. Sands , Attorney at Law, Billings, Montana
Submitted on Briefs: November 2, 2011 Decided: November 29, 2011 Filed:

__________________________________________ Clerk November 29 20112

Justice Patricia O. Cotter delivered the Opinion of the Court. ¶1 Jesse and Tera Hein rented a ho usef rom Julia Benintendi and Joey and Sarah Perkerewicz (hereinafter B&P)
. B&P alleg ed the Heins caused considerable damage to the prop erty

when they vacated the premises . Th e Heins countered that B&P unlawfully retained their security depositand refused to reimburse theH einsf or home and lawn improvements. B&P sued and obtained a default judgment. Subsequently, the District Court se t aside the default judgment and held a jury trial. B&P were awarded damages but not attorney fees or costs. They appeal . We affirm in part and reverse and remand in part. **ISSUE S**  ¶2 A restatement of the issue son appeal is : ¶3 Did the District Court err in d enying B&P’s request for attorney fees? ¶4 Did the District Court err in not awarding costs? ¶5 Did the District Court abuse its discretionin setting aside the default judgment?

**FACTUAL AND PROCEDURAL BACKGROUND** ¶6 On June 30, 2006, the Heins rented a ho usef rom B &P. With an extension of the rentala greement, the Heins were authorized to occupy the property until July, 1, 2008. The Heinsvacated on March 31, 2008. B &P a lleged the Heins caused considerable damage to the property . A s a result they retained the $1 ,100 security deposit
. The Heins countered that B&P’s retention of their security deposit was unlawful and that B&P refused to reimburse the Heins for approximately $3,000 in home and lawn improvements. When agreement between the parties could not be rea ched, B&P filed a3

Com plaint on April 1, 2009. Jesse was served with the Complaint on Aug ust 24, 2009, and Tera was served on August 26, 2009
. ¶7 Jeff Walters, an on - lawyer fa mily friendo f the Heins , contacted Toby Alback, B&P’s attorney, shortly after theH eins were served to see if a settlement could be reached. Alback assured Walters that he would not seek a default judgment while settlement negotiations were underway , andtherefore the Heins did not yet need to hire
an attorney to prepare and file their answer. Several weeks went by during which Walters tried to contact Alback on several occasionsand Alback did not return his calls. ¶8 On October 16, 2009, Alback moved for defau lt against the Heins. Alback did not serve the Heins with his affidavit or h is request for default. The Clerk of Court entered a default for failure of either Tera or Jesse to appear or answer the Complaint. On Octo ber 23, Attorney Green filed a Notice of A ppearance as new counsel for B&P and on October 28, Green filed an Applic ation for Entry of Default Judgment. The Heins were not served with the Notice of Appearance or the Application for Entry of Default Judgment. ¶9 Subsequently, t

he Heins received notice of a hearing set for November 6, 2009, to establish damages on default . On November 2, Tera, acting pro se, sought a continuance of the hearing because Jesse was in the veteran’s hospital in South Dakota. However, also on Nov

em ber 2 and before the Nov em ber 6 hearing, the District Court , unaware of Tera’s Motion for Continu ance, issued Default Judgment against the Heins and awarde d thesum of $10,907.40 to B&P, w hich included attorney fees and costs. The court did not serve the Default Judgment on the Heinsand the November 6 hearing was not held.4

¶10 B&P filed several writs o f execution

—one was served on January 6, 2010, upon Tera’s em

ployer, a company owned by Tera’s parents. On April 11 and 12, 20 10, the Heins were served with subpoenas to appear and t estify c oncerning p roperty and to produce p roperty d ocuments. The Heins engaged Attorney Sandsw ho made an appearance for the m

o n April 30, 2010 , filing a motion to set aside the default judgment. ¶11 At some time between the datesT era’s parents received a writ of execution and the Heins mo v

edt o set aside the default, theH ein s paid $1,4 65 .96 to B&P toward the default judgment award. A fter the default judgment was set aside, Heins attempted to recover these funds but B&P did not re imburse the funds prior to trial. ¶12 Over B&P’s objection and following a hearing, the District Court set aside the default judgmenton July 6, 2010
. The Heins filedtheir Answer and Counterclaim with request for jury trial on July 29, 2010 . The trial was held on January 18 and 19, 2011
. B&P were awarded damages totaling $2,281.19

. ¶13 Both parties rais ed the issue of attorney fees and costs in their pretrial briefs . The attorneys filed their bills of costs within five days of the verdict
. B&P sought $20,680 in attorney fees and $1,148.19 in costs. Heins sought $5,000 in attorney fees and $763.72 in
c osts. B oth parties claimed to be the “prevailing party” per the language of the rental ag reement clause authorizing fees and costs. The court held a hearing on fees and costs on February 28, 2011. On March 22, 2011, the court issued its Order and Memorandum. ¶14 The District Court reviewed the “attorney fee” clause in the rental agreement and concluded it applied to eviction proceedings only and therefore was not applicable to the dispute before the court. Accordingly, itr uled that an awardo f

attorney f

ees was not5

“specifically authorized” under the rental agreement. The court then considered its discretion to award attorney fees and concluded “[g]iven the totality of the circumstances in this case” awarding fees and costs to either party wasinappropri ate. ¶15 The District Court entered judgment on March 22, 2011, against B&P for $1,465.96 (the amount collected from the Heins before default judgment was set aside) , and judgment against the Heins for the verdict amount of $2,281.19. BecauseB&P was holding the Heins ’ s ecurity deposit of $1,100 and had already collected$ 1 , 465.96 f rom the Heins earlier, the court ordered B&P to pay the Heins $284.77

. B&P appeal. **STANDARD OF REVIEW** ¶16 We review

f or correctness a district court’ s decision as to whether legal authority exists to award attorney fees. We review for an abus e of discretion a district court ’ s order granting or denying attorney fees if leg al authority exists for the fees. Hughes v. Ahlgren , 2011 MT 189, ¶ 10, 361 Mont. 319, 258 P.3d 439
. We also review a district court’s denial of costs for an abuse of discretion. Hansen v. Granite Co

. , 2010 MT 107, ¶ 55, 3 56 Mont. 269, 232 P.3d 409
. An abuse of discretion occurs when the court acts arbitrarily without conscientious judgment or exceeds the bounds o f reason. Harmon v. Fiscus Realty, Inc ., 2011 MT 232, ¶ 7, 362 Mont. 135, 261 P.3d 1031
. ¶17 When a trial court grants a motion to set aside a defaultj udgment , the court ’ s ruling will be set aside only upon a showing of manifest abuse of discretion. Hoff v. Lake Co

. A bstract & Title Co. , 2011 MT 118, ¶ 18, 360 Mont. 461, 255 P.3d 137 ( citing Engelsberger v. Lake Co ., 2007 MT 211, ¶ 8, 339 Mont. 22, 167 P.3d 902. ). A manifest6

abuse of discretion is one that is “obvious, ev ident, unmistakable.” Bartell v. Za bawa , 2009 MT 204, ¶ 10, 351 Mont. 211, 214 P.3d 735. **DISCUSSION** ¶18 Did the District Court err in denying B&P’s request for attorney fees? ¶19 Relying upon Old Fashioned Baptist Church v. Mt. Dept. of Revenue, 206 Mont. 451, 67 1 P .2d 625 (1983), B&P argue on appe al that the District Court exceeded its jurisdiction when it interpreted the attorney fee clause in the rental agreement. They
ma intain that the parties had already agreed that the rental agreement provided for an award of attorney fees to the prevailing party ; therefore , the court need only have determined which of the p arties prevailed
. B &P assert that because the parties did not
arg ue thatthe attorney fee provision in the rental agreement was ambiguous , it was not an issue before the court, andthe co urt exceeded its jurisdiction by so deciding. ¶20 B&P also arguethat the court abused the discretion granted by § 70
- 24
-442, MCA, when it did not award attorney fees to them. B&P appear to claim that the District Court should require the Heins to pay their attorney fees because of the time this matter took to achieve resolution. They do not specifically allege wrongdoing on the part of the Heins , but rather

im ply that but for the Heins’ actions to hav e thedefault judgment set aside and the subsequent dis covery and trial , B &P’sf ees would be $300 instead of $20,680. They offer no authority for their argument that because the Heins lawfully interposed a defense and took the case to trial, the court was somehow obligated to award them their full measure of attorney fees. ¶21 Addressing the rental agreement claim, the fee clauseprovides:7

The violation of any of the conditions of this agreement shall be sufficient cause of eviction from said premises, Tenant agree [sic] to pay all casts [sic] of such action, including reasonable attorney’s fees and processing fees as may be fixed by courts of Law. The District Court interpreted this language to apply to eviction proceedings only, and concluded that because the dispute before the courtwas not an eviction procee ding, the attorney fee clausedid not apply. ¶22 We reject B&P’s arg umentthat the District Court erred in interpreting this clause
. Unlike Old Fashioned Baptist Church , in which the court made rulings on parcels of property not in dispute, here both parties clearly asked the District C ourt to award attorney fees as prov

ided by the rental agreement
. Therefore the court did not e rr in
rev iewing the attorney fee language in the rental agreement. The court determined t he rental agreement did not clearly and unequivocally require th e court to award attorney fees when no eviction had occurred
. We conclude this was not error. ¶23 Moreover, the court did not abuse its discretion under § 70
- 24
- 442(1), MCA, which states: In an action on a rental agreement or arising un der this chapter, reasonable attorney fees, tog

ether with costs and necessary disbursements, ma y be awarded to the prevailing party notwithstanding an ag reement to the contrary. ¶24 This is a discretionary statute. Stanley v. Lemire , 2006 MT 304, ¶ 73, 334 M ont. 489, 148 P.3d 643 (“By virtue of the word ‘may,’ an award of attorney fees pursuant to this statute is discretionary. ”)
. I t does not mandate an award of attorney fees to a prevailing party in a rental dispute. As noted by the District Court, both parties wa lked away from this dispute with a legitimate claim to success. Each party was a “prevailing8

party” as to individual claims before the court. The District Court carefully reviewed the billing records of

the attorneys involvedand ev aluated the re asonableness of the fees under the seven factors set forth in Plath v. Schonrock, 2003 MT 21, 314 Mont. 101, 64 P.3d 984. The court acknowledgedthe a ttorneys provided their clients with significant, competent and valuable services, but concluded itc oul d not justify awarding fees in
excess of $20,000 for a judgment of approximately $2,300. We conclude the court undertook an appropriate analysis of the issue and did not abuse its discretion in denying attorney fees to both parties. ¶25 Did the District Court errin not awarding costs? ¶26 B&P mo ved for costs totaling $1,148.19. The court concluded “[a] considerable portion of the claimed attorney fees and costs were incurred in obtaining the default judgment, serving writs and executing on that judgment and conte sting Heins’ Motion to [S] et Aside Default. [ B&P] were not the prev ailing party as to these issues and clearly should not recover attorney fees and costs incurred through July 6, 2010 when the default judgment was set aside.” ¶27 B&P argue that while an award of attorney fees is discretionary, they are entitled to costs under § 25
- 10
- 101, MCA , whichprov ides: “ Costs are allowed, of course, to the plaintiff upon a judgment in the plaintiff’s fa vor in the following cases: (1) in an action for the recovery of r eal property or damages to real property . . . . ” The Heins counter that § 25

- 10
- 101, MCA, does not apply here because the statute refers to a “judgment in the plaintiff’s favor,” but does not refer to a “verdict.”9

¶28 As noted above , the jury rendered a v erd ict for B&P in the amount of $2,281.19. As a result, B&P were the prevailing parties. BecauseB &P had retained the Heins’ $1,100 security depositas well as $1,465.96 collected after default judgment was entered , the Heins were entitled to a net payment
. The fact that B&P wererequired to repay the Heins for earlier

- retained funds does not change the fact that the verdict and judg ment in this case went to B&P. ¶29 Next, § 25
- 10
- 101, MCA, unlike § 70
- 24
- 442, MCA, referenced above, is not discretionary but ismandatory. Rolinson v. Bozeman Deaconess Health Serv ., Inc ., 2005 MT 95, ¶ ¶ 36 , 38, 326 Mont. 491, 111 P.3d 202. I t does not provide that costsincurred pursuing a ruling o n an issue uponw hich the prevailing party did not prev ail should be excluded fro m the costs calculation. The prevailing plaintiff is simply entitled to its costs
. For these reasons, the District Court’sd ecision to require each party to bear its
own costs was incorrect. We therefore reverse the court’s denial of costs to B&P and
re mand with instructions to determine and award appropriate costs , pursuant to § 25
- 10
- 101, MCA. ¶30 Did the District Court abuse its discretionin setting aside the default judgment? ¶31 B&P assert on appeal that the Heinsf ailed to satisfy the requirements o f the four

- prong test set out in Blume v. Metropolitan Life Ins. Co. , 242 Mont. 465, 791 P.2d 784 (1990). In Blume , we restatedthat before a district court may set aside a default judgment, “g

ood cause” must be shown. We heldthat the person seeking to hav e the default judgment set aside could establish “good cause” by satisfying the following four

prong test: ( 1) the defaulting party proceeded with diligence; (2 ) the defaulting party’s10

neglect was excusable ; (3 ) the judgment, if permitted to stand, will affe ct the defaulting party injuriously, and (4) thedefaulting party has a defense to plaintiff’s cause of action upon the merits. Blume , 242 Mont. at 467, 791 P.2d at 786. B&P claim the Heins failed to meet both the diligence and excusable neglect criteria
. They arg ue , therefore, the District C ourt erred in setting aside the default judgment. ¶32 The Heins counter that Alback assured them no default would be entered without notice , but he did not honor his promise. Additionally, B&P changed attorneys without notifying the Heins

—a violation of the strictly

- enforced Rule 10 of the Montana Uniform District Court Rules. The Heins also assert that they made an entry of appearance before default judgment was entered. A nd lastly, they argue that the District Court set the amount of the default judgment award based up on an ex part e application prior to the date on which a noticed hearing was scheduled. They propose that each of these reasons alone is sufficient justification for the District Court to set aside the d efault judgment. ¶33 The District Court carefully rev iewed the facts of

this case and analyzed them under the Blumef

actors. The court expressly noted in its order setting aside the default judgment the “lack of actual notice” to the Heins of several leg al d ocuments filed by B&P , including but not limited to Alback’s withdrawal and Green’s substitution and appearance. The court recognized that the Heins had “apparently resided at the same location during the entire duration of this matter, and presumably c ould have been served with any documents or notices at that residence.” ¶34 The District Court also acknowledged receipt of Tera’s November 2 motion to continue the Nov

em ber 6 hearing based upon Jesse’s hospitalization and unavailability.11

The court concluded thata s a result of “ the lack of actual notice given to [the Heins], [Jesse’s] health issues and Alback’s representations to [them], [the Heins’] delay may not have been as eg

regious as [B&P] arg

ue.” It further concluded that, based upon these facts, “ in relation to t

he first and second prongs of the Blumetest, it appears [the Heins] proceeded with reasonable diligence once served with actual notice of the default.” ¶35 The court further concluded that the record support ed t he Heins’ claim that they hadameritorious defense to B&P’s action ag ain them ; therefore , the third prong of Blumewas met. L astly, satisfying the fourth prong of the Blumet est, the court noted record

- based evidence that the Heins had “limited financial resources” especially given Jesse’ s health problems , and a judgment of approximately $10,000 would affect them “injuriously.” ¶36 The principle that “ every litigated case should be tried on the merits and thus judgments by default are not favored”g uides this Court in considering motions to s et aside default judgments. Bryden v. Lakeside Ventures, LLC, 2009 MT 320, ¶ 18, 352 Mont. 452, 218 P.3d 61 ( citing Essex Ins. Co. v. Moos e’ s Saloon, Inc ., 2007 MT 202, ¶ 17, 338 Mont. 423, 166 P.3d 451. ). Additionally, it is well

- established that the party seeking to set aside a default judgment has the burden of proof andm ust establish “good cause” to set aside the judgment. Bryden , ¶ 18. ¶37 In the case before us, the District Court carefully analyzed the facts under the Blumefactors and concluded theHeins had established good cause to set aside the default judgment. F or the reasons recited by the District Court, we agree. Alback’s disingenuous assurance that he would not seek default followed by filing arequest for12

defau lt without notifying the He ins wa s unacceptable. Failure of B&P to serve the Heins with various legal filings when the Heins resided at the same address as they had during negotiations with Alback is equally unacceptable. Additionally, the court rightfully acknowledged its ignoran ce of Tera’s pre - default motion to continue. These factors
c o mbined put the Heins at a distinct disadvantage in this proceeding, and provided good cause for the court’s action in setting aside the default judgment. The District Court did not manifestly abuse its discretion in doing so. **CONCLUSION** ¶38 For the foregoing reasons, we affirm the District Court’s rulings on denial of attorney fees and its decision to set aside the default judgment. We reverse its decision denying costs to B&P and remand with instruction to determine and award appropriate costs under § 25
- 10
- 101, MCA.
/S/ PATRICIA COTTER We concur: /S/ MIKE McGRATH /S/ JAMES C. NELSON /S/ BETH BAKER /S/ BRIAN MORRIS