No. 92-409 IN THE SUPREME COURT OF THE STATE OF MONTANA 1993

RUSSELL ERIC MAULDING, Plaintiff and Respondent,

-vsROBERT HARDMAN, Defendant and Appellant.

APPEAL FROM: District Court of the First Judicial District, In and for the County of Lewis and Clark, The Honorable Jeffrey Sherlock, Judgepresiding.

COUNSEL OF RECORD: For Appellant: Joe Seifert: Gough, Shanahan, Johnson & Waterman, Helena, Montana For Respondent: John C. Doubek: Small, Hatch, Doubek & Pyfer, Helena,Montana 

# D Submitted on Briefs: December 3, 1992



# .

' Decided: February 11, 1993 ~iledfEB 

## 11

## 1993

STATEOF.ffiONS'Justice John Conway Harrison delivered the Opinion of the Court.

This is an appeal from the District Court of the First Judicial District,Lewis and ClarkCounty,theHonorable JeffreyM. Sherlock presiding. Appellant Robert Hardman (Hardman) appeals from the denial of his Motion to Set Aside Default Judgment which

was deemed denied under Rule 60(c), M.R.Civ.P., because the District Court failed to rule on it within 45 days of its filing. We set aside the default judgment and remand for a trial on the merits. The sole issue is whether Hardman is entitled to have the default judgment set aside in favor of a trial on themerits. In the early morning hours of September 5, 1989, Hardman, respondentRussell Maulding (Maulding), Dan Forsina, and Crickett Martin were driving in the SiebenRanch area near Helena. Hardman

was driving his mother's car. According toHardmantstestimonyat the hearing on themotion, while rounding a curve the car slid off the road due to loose gravel. The car came to a stop in the ditch without hitting any obstructions. While Maulding drove, the other three pushed the car out of the ditch, scraping a fence and knocking out a post along theway. After getting out of the ditch they drove home. No one appeared injured or complained of being injured at the time, but when a highway patrolman cited Hardman around 5:00 p.m. the next day for not reporting an accident, he learned thatMauldinghadvisited thehospital. Hardman laterpled guilty to the charge of not reporting an accident and paid a fine. On September 13, 1989,JohnDoubek,Mauldingtsattorney, sent 2a letter to The Farmers Insurance Group of Companies demanding payment of Maulding's medical expenses. On September 20, James Higgins, a claims representativewith Farmers, spoke with Doubek and took Hardman's statement regarding the accident. Given Hardman's versionof the incident, Higginsquestioned liabilityand denied payment at that time. According to Higgins, Dan Forsina's statement, whichhe took onJanuary 3,1990,corroboratedHardman's description of the incident, and he conveyed this to Doubek that day. The only documents presented to Higgins to substantiate the claimed injurywere theemergency roomrecord,which indicatedonly that Maulding was to rest his back, and a copy of a prescription. He received no other documents substantiating Maulding's claim. Nor did he receivea copy of theMontana Highway Patrol report from Doubek as he expected. Higgins also tried to contact Doubek regarding the case,but Doubekdid not returnhis calls. Hehad no further contact with Doubek on this matter until Doubek sent a letter in May 1992 requesting payment of the judgment. Maulding filed suit against Hardman onMay 19, 1991,alleging

a much different version of the accident than given by Hardman. Maulding alleged that Hardman was under the influence of alcohol, driving carelessly and recklessly and at excessive speed, and that theywent over an embankment resulting in seriousbodily injury to Maulding. The complaint was served on Hardman on May 1, 1991. BecauseHardmanwas convinced thatnothinghad happened, heput the documents in a drawer, took no action, and told no one 

### of them.On June 24, Doubek requested that the clerk enter Hardman's default for failing to answer or otherwise appear. On November 8, 1991, the District Court entered default judgment on the issue of liability with damages to be determined later upon the proper showing. The court held a hearing on damages on March 17, 1992, and on March 19 entered judgment in the amount of $81,306.31. On May 19, Doubek requested that the clerk issue an execution writ against Hardman. On the previous day Higgins received a letter fromDoubek informinghim of theproceedings and offeringto settle thematter for $75,000 if paid immediately. The insurer responded by providing counsel for Hardman, who moved to set aside the default judgment on May 22. The court set

a hearing on the motion for July 16, 1992. At thehearing, Doubek raised the issue of whether the hearing was timely, citing Rule 6O(c), M.R.Civ.P., which in conjunction with Rules 59(d) and (g) requires the court to rule on themotion within 45 days of filing

or it is deemed denied and the court loses jurisdiction to decide the matter. The court took that issue under advisement and heard the testimony regarding the motion to set aside the default judgment. The judge required the parties to brief the timeliness issue. After reading Maulding's brief, Hardman conceded that the District Court lost jurisdiction to decide the motion on July 7, 1992, the date on which it was deemed denied. Hardman filed his Notice of Appeal on July 24, 1992. The issuebefore this Court iswhether Hardman is entitled tohave the default judgment set aside in favor of a trial on the merits. Maulding argues that there simply isno evidence in the record upon which Hardman or this Court may rely in deciding this issue. He points out that Hardman's attorney did not present any affidavits in support of his motion. However, an affidavit of merit is no longer required under our Rules of Civil Procedure. Blume v. Metropolitan Life Ins. Co. (1990), 242Mont. 465,470, 791 P.2d 784, 787; Keller v. Hanson (1971), 157 Mont. 307, 309, 485 P.2d 705, 707; see alsoRule 11and Rule 6O(b), M.R.Civ.P. In this case,Hardman's brief in support of hismotion set forth the facts and the evidence he intended to show at the hearing on the motion. That is all that was required at that point. Maulding next argues that because the District Court lost jurisdictionto entertainthemotion, the evidencepresented at the hearing is not part of the record and may not be cited by Hardman or relied on by this Court. Under Rule 60(c), M.R.Civ.P., the motionwasdeemed denied because the 45-daytime limithad expired. Therefore, the District Court lost jurisdiction to entertain the motion. Inre theMarriage ofMcKinnon (1992)

## ,251Mont. 347, 350, 825 P.2d 551, 553; In re the Marriage of Miller (1989), 238 Mont. 108, 112, 776 P.2d 1218, 1220. However, it iswithin this Court's power under 

### 5 3-2-204,MCA, to consider any trial court proceedings that affect the parties' substantial rights, and we may forgood cause remand this case for furtherproceedings. United FarmAgencyv. Blome (1982), 198Mont.435, 438, 646 P.2d 1205, 1207. See also Cabalceta v. Standard Fruit Co. (11th Cir. 1989), 883 F.2d 1553, 1555 (in determining whether to exercise its inherent equitable power to supplement the record, appellate court should evaluate all factors, issues, and circumstances including whether accepting the material into the record would establishbeyond a doubt the proper resolution of the pending issueandwhether remandwould be contrary to the interests of justice and judicial economy); and Turk v. United States (8th Cir. 1970), 429 F.2d 1327, 1329 (in the interest of justice the appellate court may order record enlarged in order to review testimony in transcript of preliminary hearing). 

### Inthis case,Mauldinghad full opportunitytoprepare for the hearing, to cross-examine Hardman's witnesses, and to present his

own evidence. There is no claim of an evidentiary error at the proceeding, and we see none in the transcript. Further, that evidence was necessary for Hardman to support his motion. More importantly, that evidence is necessary for this Court to make an informed decision on this matter. Therefore, in the interest of justiceand judicial economy,thisCourt will considerthe evidence presented at the July 16 hearing. To remand this case to the District Court for a second hearing on the motion would be nonsensical. We now turn to Hardman's motion to set aside the default judgment. Thatmotion is governed by Rule 60(b), M.R.Civ.P. As a general rule, cases are tobe tried on the merits and judgmentsby default are not favored. Lords 

### v. Newman (1984), 212 Mont. 359,363, 688P.2d 290, 293;Little Horn StateBankv. Real Bird (l979), 183Mont. 208, 210, 598 P.2d 1109, 1110. Where themotion ismade and "supportedby a showingthat leavesresponsibleminds indoubt, courtstend to resolve [those]doubts in favor of themotion, since courts favor a trial on the issues over a default judgment." Twenty-Seventh Street, Inc. v. Johnson (1986), 220Mont. 469, 471, 716 P.2d 210, 211. Furthermore, if the District Court had denied the motion, rather than allowing it to be deemed denied, we would only be required to find a slight abuse of discretion in order to

reverse the denial. Twentv-Seventh Street, Inc., 716 P.2d at 210. However, aparty seeking to set aside a default judgmentmust show both a good cause for doing so under Rule 60(b) and the existence of a meritorious defense. First NattlBank of Cut Bank

v. Springs (1987), 225 Mont. 62, 67, 731 P.2d 332, 335. We will discuss the good cause requirement shortly. As for a meritorious defense,Hardman testified at thehearing that the car simply slid off the road due to loose gravel and that no one was injured, and Higgins testified that the statement he took from Dan Forsina, a non-party, corroborated Hardman's version of the accident. Although themerits are tobe finally decided at trial,Hardmanhas met his burden at this point. Turning now to the justification under Rule 60(b), Hardman specificallycited subsections (I), (3), and (6) of that rulewhich provide: Rule 60(b). Mistakes

# - inadvertence

# - excusable neglect 

# - newly discovered evidence

# - fraud, etc. Onmotion and upon such terms as are just, the court may relieve a party or a party's legal representative from a finaljudgment, order,orproceeding forthe followingreasons: (1) mistake, inadvertence, surprise, or excusable neglect;

# . . . (3) fraud (whetherheretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; 

# . . . (6) any other reason justifying relief from the operation of the judgment. Rule 60(b) furtherprovides that "[tlhe motion shall be made within a reasonabletime, and for reasons (I), (2), and (3)when a defendant has been personally served, 

# .. . not more than 60 days after the judgment, order or proceeding was entered 

# . . .. II Maulding cites Libby Rod & Gun Club v. Moraski (D.C. Mont. 1981) 519 F.Supp. 643, 647, where the court said, "[Ilt is generally held that if a party seeks relief under any other subsection of Rule 60(b), it cannot also claim relief under 60(b) (6)" to support his argument that Hardman is precluded from claiming relief under subsection (6). And because relief under subsections (1) and (3) is time barred, he argues, Hardman is not entitled to any relief at all under Rule 60(b). However, the above quote from Libbv Rod & Gun Club is not 

### a full or fair statement of the law as this Court views it. We stated our interpretation in

Wright and Miller cite several federal cases construing Federal Rule 60(b), which is almost identical to the Montana Rule, and state: These cases certainly seemed to establish that clause (6) and the first five clauses are mutually exclusive and that relief cannot be had under clause (6) if it would have been available under the earlier clauses. This reading seems required alsoby the languageof 

### the rule. We agree with Wright and Miller's interpretation that relief cannot be obtained under Rule 60(b)(6),M.R.Civ.P., if that relief is available under Rule 6O(b) (1)to (5), M.R.Civ.P. 731 P.2d at 334 (citationomitted). Aparty isprecluded from relief under subsection (6) when the facts or circumstanceswould bring the case under one of the first five subsections. In that instance, the party is not entitled to relief under subsection (6) based on the same facts or circumstances. Here, however, the fact that Hardman requested relief under subsections (1) and (3) and also under subsection (6) is not fatal. Our recent opinion in Koch v. Billings School Dist. No. 2 (Mont. 1992), 833 P.2d 181, 49 St.Rep. 517, where we said that the plaintiff should have chosen between subsection (5) and

(6) because they are mutually exclusive, illustrates this. The plaintiff's failure to make this choice did not prevent the District Court or this Court fromdeterminingwhich subsectionwas proper. We conclude that in this caseHardman's motion should have been based on subsection (6), and we will analyze it under that subsectionalone. A motion under subsection (6) must be "made within a reasonable time.I' Rule 60(b)

## , M.R.Civ.P. 

### In this case, Higgins received a letter from Doubek 60 days after entry of judgment informinghim of the judgment, requestingpayment, and offering to settle the case for $75,000 if paid immediately. We note that the timing of this letter prevented Hardman from claiming relief under the first three subsections of Rule 60(b) due to the 60-day requirement. The insurance companyhired anattorneywho filedthe motion and supporting brief four days later. The motion was made 9within a reasonable time and with due diligence under these circumstances. We conclude that Hardman is entitled to relief under Rule 60(b)(6) for two reasons. The first reason is themanner inwhich Doubek handled this case. The second reason is themanner inwhich damages were established and awarded. This Court said in In reMarriage of Castor (1991),249 Mont. 495, 500, 817 P.2d 665, 668, "Generally, relief is afforded under subsection (6) of Rule 60(b) in extraordinary situations when circumstancesgobeyondthosecoveredby the first five subsections

or when a party in whose favor judgment was entered has acted improperly.I1 In this case Doubek initially made a demand on the insurance company a week after the accident and requested a $75 payment aweek after that. However, the only documentshe sentthe insurance adjuster were a copy of an emergency room report and a copy of 

### a prescription. These documents did not give a history of the injury or any other information. Although Higgins requested a copy of the highway patrol report, Doubek did not send one or indicate why he could not. Nor did Doubek provide any further documentation to substantiate this claim. Further, he failed to return Higgins' telephone calls regarding this matter. He then sought payment from the insurance company once he had obtained a judgment although he did not inform Higgins of any of the proceedings. We realize that as a general rule, Doubek was not required to inform the insurance company of the proceedings. However, he clearly knew of the insurance company's interest inresulting to third parties is to b, motion. SeeRing v. Hoselton (1982), JohnJ. Ming, Inc. v. District Court 907. We are also mindful of Rule 3.3 this lawsuit and proceeded at all times with an eye toward collecting from the insurance company once he obtained a judgment for Maulding. We have previously recognized that prejudice

e considered in a Rule 60(b)

197Mont. 414, 643 P.2d 1165; (l97O), 155Mont. 84, 466 P.2d

of the Rules of Professional Conduct and our decision in Madson v. Petrie Tractor & Equipment Co. (1938), 106 Mont. 382, 77 P.2d 1038. Rule 3.3 requires a lawyer in ex parte proceedings to inform the court of all material facts known by the lawyer whether or not they are adverse. In Madsonwevacated adefault judgmentpartlybecause theplaintiff's attorney did not speak up at a hearing and correct defendant's attorney who stated there had been no service of process on his clients. Althoughplaintiff's attorneyknewthat thedefendanthad been served because he had received the sheriff's return of service, he waited until he moved for entry of default to acknowledge it. Inthe present case,Doubek was aware that an insurancepolicy covered the claim, and he was informed by Higgins that Dan Forsina's statementcorroboratedHardman's versionof theaccident. We believe Doubek shouldhave informed the District Court of these facts. We now turn to the manner in which the damages were established and awarded in this case. We first look at the awardof punitive damages. At the close of the hearing, the District Court awarded $25,000forpunitive damages. This award isbased on

an allegation inthe complaint that stated, "Plaintiff isuncertain

as to whether defendantwas operating his vehicle while under the influence of alcoholbut,upon informationandbelief, allegesthat said defendant had been drinking prior to driving his vehicle." "[Nlo plaintiff is ever entitled to exemplary damages as a matter of right, regardlessof the situationor the sufficiency of the facts." Davisv. Sheriff (1988), 234 Mont. 126, 133, 762 P.2d 221, 226. Section 27-1-221(5), MCA, requires that all elements of

a claim for punitive damages be proven by clear and convincing evidence,and 5 27-1-221(7) (b)

## ,MCA, requires the judge to "clearly state his reasons for making the award in findings of fact and conclusions of law, demonstrating consideration of each of [nine enumerated factors]." The only evidence presented here is an unsubstantiated claim in the complaint. As to the second requirement, the only reasons stated consist of a statement in the Judgment prepared by Doubek that "the evidence showed that the damages sustainedby the Plaintiffwere forpersonal injury caused by DefendantHardmanls operationof amotorvehicle while Defendant Hardman was intoxicated from using alcohol." As we said above, there was no evidence. Further, this statement does not satisfy the requirementsof 9 27-1-221(7)(b), MCA. SeeWard v. Vibrasonic Laboratories, Inc. (1989), 236 Mont. 314, 769 P.2d 1229 (district court erred by not making findings pursuant to 9 27-1-221,MCA). We next look at the way themedical evidence was presented inorder to establish damages. Doubek was allowed to give an unqualified expert medical opinion regarding Hardman's condition and prognosis for recovery. The District Court should not have acceptedthistestimonybecause,on thesematters, it shoulddepend

on qualified expert testimony. See Rules 701 and 702,M.R.Evid.; Shahrokhfarv. State FarmMut. Auto. Ins. Co. (1981), 194Mont. 76, 634 P.2d 653;Hill v. Squibb & Sons, E.R. (1979), 181 Mont. 199, 592 P.2d 1383. We conclude that this hearing was conducted as a matter of form over substance and that justice would not be served by requiring Hardman or his insurer to answer for damages established in this manner. Lastly, Maulding argues that he would be prejudiced if the default judgment were vacated. However, there is no indication in the record that any of the witnesses are unavailable or that Maulding will be unable to produce documentation of the accident and any treatment he underwent. Furthermore, any prejudice that might arise is attributable toMaulding. The incident giving rise to this lawsuit occurred on September 5, 1989. Although Doubek made demands on the insurance company a week later, he failed to substantiate the claim or to return Higgins' calls regarding this matter. He thenwaited for a

### year and ahalf to filehis complaint and another 40 days after that to serve Hardman. Then he waited nearly two months before requesting that Hardman's default be entered. In January 1992 the court had toprompt him to request a hearing on damages. This hearing was finally held and the court granted judgment on March 17, 1992. Doubek then waited for twomore months to pass before requesting an execution be issued and before contacting Higgins. Any prejudice that might result from delay is attributable only to Maulding, Based on the foregoing, we vacate the default judgment and remand to the District Court for a trial 

### on the merits.Justice Karla 

### M. Gray, dissenting.



### I respectfully dissent from the opinion of the majority. Themajority opinion strongly implies, without quite saying in

somanywords,that respondentMaulding's counsel engaged in slsharp practicesI1in hishandling of this case. 

### Ido not disagree. It is my view, however, that in its concern over counselpsactions and its determination to right a wrong, the majority fails to do an appropriate and precise Rule 6O(b)(6), M.R.Civ.P., analysis. The result is a further clouding of 

### aRule already so

### murky 

### as tobe of little guidance to trial courts and counsel. For this reason, I cannot join in the majority opinion. Inmy opinion, an appropriate Rule 60(b)(6)analysis supports 

### setting aside the entry of default judgment on damages 

### by the District Court. Itdoes not allow the settingaside of the earlier default judgment on liability against appellant Hardman. The critical difference lies in the fact that the challenge to the judgment on liability is grounded on actions of both Hardman himself and Maulding's counsel which bring it squarely within subsections (1)and (3) of the Rule. The 60-day limitation for motions brought pursuant to those subsections expired on or about January 8, 1992--60 days after the default judgment on 

### liability



### was entered November 8, 1991. The challenge to the default judgment on damages, on the other hand, is a legitimate Iganyother reasonpp motion pursuant to Rule 60(b)(6)

### , premised as it is on significant irregularities at the hearing on damages. Therefore,that motion need not have been made within 60 days subsequent to the entry of default judgment on damages on March 19, 1992. This analysis comports with the majority's correct statement that a "party is precluded from relief under subsection (6) when the facts or circumstanceswould bring the case under one of the first five subsections.~~Here,motions under subsections (1) and (3) were premised on events relating to the entry of judgment on liability; thus, they were not timely made due to the fact that more than 60 days had elapsed from the time of the liability judgment to the date the motions were made. The subsection (6) motion, however, was based on different facts and circumstances--those surrounding the hearing on damages and the default judgment entered thereon. These facts and circumstances do not fall within one of the other subsections of the Rule; thus, Hardman is not precluded from relief under subsection (6). This portion of the motion--timely under the "reasonable time" limitation for Rule 60(b) (6) motions--properly

can and should be granted. In addition, the majority's reliance on dicta from In re Marriage of Castor (1991),249 Mont. 495, 817 P.2d 665,will haunt this Court and Rule 60(b) practice for a long time to come. In Castor, we stated correctly that relief is afforded under subsection (6) of Rule 60(b) "in extraordinary situations when circumstances go beyondthosecoveredby the first five subsections



# . .. .'I Unfortunately, we went on to say--both needlessly, under the facts of Castor, and erroneously, inmy view--that relief wasalso available under subsection (6) "when a party in whose favor judgment was entered has acted improperly-l1 Castor, 817 P.2d at 668. That portion of our statement had no applicability to the

casebefore us: nor, indeed,was it supportedby the cases we cited therein. It ismy view that the "when a party inwhose favor judgment was entered has acted improperlyt1criterion for Rule 60(b)(6) applicability is entirely inappropriate. Such considerations clearly come within subsection (3):s "fraud 

# . . 

# . , misrepresentation, or othermisconduct of an adverse partywt language. As such,motions on that basiswould be untimelyunlessbroughtwithin 60 days of the judgment. By erroneously including that language within the applicability of subsection (6) of the Rule in Castor,

we departed from the fundamental requirement that subsection (6) relief isnot available when the factsor circumstanceswould bring the case under one of the first five subsections and from our appropriate reliance on Wright and Miller. That fundamental requirement will be impossible for us to apply in the future so long as we refuse to say in a straightforward manner that the quoted Castor language was erroneous dicta. Having joined in the Castor opinion, I am willing to admit my error; I wish that the majority would see fit to do the same 

### in order that the salutary purposes of Rule 60(b) can continue to be met. Finally, the majority appears to "believelt that Maulding1s counsel violatedRule 3.3 of theRules of Professional Conduct. If the majority is sincere in this belief, it appears to me that theCanons of Judicial Ethicsmay require it to refer thematter to the Commission on Practice. Absent sucha referral, Iquestion whether statements about violations of the Rules of Professional Conduct have an appropriate place in our decisions. I would reverse only the denial of Hardman's Rule 60(b) (6) motion and remand for further proceedings on damages. While this resultmight not be entirely Itfairlt toHardmanasinsurer, itwould preserve the integrity of Rule 60(b) and provide appropriate and necessary guidance to practitioners and trial courts.