Opinion ID: 2093524
Heading Depth: 1
Heading Rank: 2

Heading: Whether the District Court Abused its Discretion in Refusing to Set Aside the Default and Default Judgment.

Text: Rule 236 provides that, [o]n motion and for good cause shown, and upon such terms as the court prescribes, but not ex parte, the court may set aside a default or the judgment thereon, for mistake, inadvertence, surprise, excusable neglect or unavoidable casualty. Such motion must be filed promptly after the discovery of the grounds thereof, but not more than sixty days after entry of the judgment. Its filing shall not affect the finality of the judgment or impair its operation. (Emphasis added.) We recently reviewed the principles guiding our review of a court's ruling on a motion to set aside a default and default judgment in Central National Insurance Co., 513 N.W.2d at 753: We vest district courts with broad discretion in ruling on a motion to set aside a default. We reverse such a ruling only if this discretion is abused. Generally, we find such an abuse only when there is a lack of substantial evidence to support the district court's ruling. We are bound by the district court's findings of fact if supported by substantial evidence, and we view the evidence in the light most favorable to the district court's ruling. (Citations omitted.) The movant has the burden to plead and prove good cause under the rule. Id. at 754. The movant establishes good cause only if the movant proves one of the grounds in the rule. Id. A determination of whether a movant has established good cause is not a finding of fact; rather, it is a legal conclusion, which is not binding upon us. We are more reluctant to interfere with a court's grant of a motion to set aside a default and a default judgment than with its denial. Id. In that sense, we look with disfavor on a denial of such a motion, and we think all doubt should be resolved in favor of setting aside the default and default judgment. This attitude reflects our view of the underlying purpose of rule 236: to allow a determination of controversies on their merits rather than on the basis of nonprejudicial inadvertence or mistake. Whitehorn v. Lovik, 398 N.W.2d 851, 853 (Iowa 1987).
In Central National we recognized that our previous cases had shown more liberality in granting relief on the excusable-neglect ground when the mistake was that of an attorney or insurer rather than of the litigant alone. See Central Nat'l, 513 N.W.2d at 755. We found this approach too narrow, quoting with approval the following language from a dissent in First National Bank v. Claiser, 308 N.W.2d 1, 3 (Iowa 1981) (Uhlenhopp, J., dissenting): I think we should reexamine the rationale of our decisions under rule 236. When the party against whom a default is entered actually desires to prosecute his claim (if a plaintiff) or to present his defense (if a defendant), the default frequently constitutes a windfall for the other party; the latter party might not be able to prevail if the case were heard on the merits. Moreover, with the default set aside, often the latter party is no worse off, on the merits of the case, than if the default had not been entered. The loser, however, is deprived of his claim or defense without trial, irrespective of its merits. I do not refer to the case in which a party willfully ignores the rules of procedure or defies them. I refer to the cases involving bungles. Rule 236 does not contemplate a blameless party; it contemplates that some fault actually exists; it allows relief for neglect, if the neglect is excusable. If the party is so culpable as to be inexcusable, the guilty party can have no relief. The federal courts grant relief quite readily in order to get to the merits and avoid harsh results. I would adopt the rationale of decisions of this kind and grant relief in the present case. Following the spirit of this dissent, we liberalized our approach to the excusable-neglect ground by requiring the district court to focus on the following four factors when determining excusable neglect constituting good cause: First, did the defaulting party actually intend to defend? Whether the party moved promptly to set aside the default is significant on this point. Second, does the defaulting party assert a claim or defense in good faith? Third, did the defaulting party willfully ignore or defy the rules of procedure or was the default simply the result of a mistake? Last, whether relief is warranted should not depend on who made the mistake. Central Nat'l, 513 N.W.2d at 756. The first two factors carry forward requirements our prior cases have established for proving excusable neglect constituting good cause. See, e.g., In re Marriage of Huston, 263 N.W.2d 697, 698 (Iowa 1978) (The movant must affirmatively show he intended to defend and took steps to do so, but because of some misunderstanding, accident, or excusable neglect failed to do so.); Edgar v. Armored Carrier Corp., 256 Iowa 700, 707, 128 N.W.2d 922, 926 (1964) (holding that district court has discretion to set aside a default and default judgment when the defendant (1) acts promptly, (2) in good faith intends to defend, and (3) shows a meritorious defense). As to the third factor, to uphold a denial of a motion to set aside a default and default judgment, there must be substantial evidence that the defaulting party willfully ignored or defied the rules of procedure. Willfully and defying signal conduct that goes beyond negligent or careless conduct. Such words indicate conduct on the part of the defaulting party showing a deliberate intention to ignore, and resist any adherence to, the rules of procedure. This requirement of willfulness is consistent with our previous holdings that excusable neglect warranting relief from a default excludes conduct amounting to no care, no attention and approaching gross neglect or willful procrastination. See Hobbs v. Martin Marietta Co., 257 Iowa 124, 131-32, 131 N.W.2d 772, 777 (1964). If there is substantial evidence the default occurred as a result of a mistake, such evidence, of course, is inconsistent with conduct that willfully ignores or defies the rules of procedure. In Central National, when we used the word mistake in the third factor, we had in mind the dictionary meaning of that word: an error in action, calculation, opinion, or judgment caused by poor reasoning, carelessness, insufficient knowledge .... Webster's Encyclopedic Unabridged Dictionary of the English Language 1232 (2d ed.1996). In Central National our intention underlying the fourth factor (relief should not depend on who made the mistake) was to eliminate any distinction between conduct on the part of the defaulting party versus conduct on the part of the party's insurer or attorney. See 513 N.W.2d at 755-56. In the past, more liberality had been shown in granting relief when the mistake was that of the party's insurer or attorney rather than of the litigant alone. Compare Flexsteel Indus., Inc. v. Morbern Indus. Ltd., 239 N.W.2d 593, 598-99 (Iowa 1976) (default set aside when the defendant's insurer misunderstood original notice), Edgar, 256 Iowa at 705-07, 128 N.W.2d at 925-26 (default set aside when notice was lost or mislaid by defendant's insurer), and Handy v. Handy, 250 Iowa 879, 885, 96 N.W.2d 922, 926 (1959) (default set aside when default was due to trial counsel's failure to appear at time set for trial), with Haynes v. Ruhoff, 261 Iowa 1279, 1284-86, 157 N.W.2d 914, 917-18 (1968) (defendant's confusion as to import of notice not grounds to set aside default judgment), and Madsen v. Litton Indus., Inc., 498 N.W.2d 715, 718 (Iowa 1993) (defendant's mistaken belief that personal injury case was already in litigation because of mislabeling of file did not excuse defendant's failure to respond to original notice served as required to set aside resulting default judgment). With these principles in mind, we turn to the record in this case.
1. Willfully ignoring or defying the rules of procedure. The district court found that Feterl intended to defend the lawsuit. The court cited Streff's actions in support of this finding, noting that, when the accident first occurred, he immediately notified the appropriate officials at Core of the claim. Additionally, the court noted that, when the suit papers were served, Streff immediately sent them to Krull and, after waiting a few days, contacted Smith at WCAS as Krull instructed him to do. The court also found that Feterl moved promptly to set aside the default as soon as Feterl learned of it. Additionally, the district court found Feterl had a good-faith defense. In support of this finding, the court noted that Feterl filed an answer setting forth affirmative defenses and denying the key allegations in the petition. The court cited previous case authority holding that (1) a general denial in an answer is sufficient to constitute a prima facie showing of a meritorious defense, and (2) it is not necessary for the moving party to introduce other evidence tending to prove that it has such a defense. The court, however, found that Feterl had willfully ignored or defied the rules of procedure. The fighting issue then is whether there was substantial evidence to support this finding. For reasons that follow, we conclude there was not substantial evidence to support the finding. The district court found that there was no presumption that Warzyniec ever received the suit papers from Krull. The court therefore proceeded on the assumption that Warzyniec never received the papers. We note that whatever evidence there is on this point supports a finding that Warzyniec never received the papers. Warzyniec testified he never received the papers, and there is no record evidence to dispute his testimony. The district court then made the observation that, had there been no evidence other than the fact that Krull had sent the suit papers and Warzyniec had not received them, the court should then set aside the default judgment. The court, however, found these two key facts (Krull's sending the suit papers and Warzyniec not receiving them) were not controlling for two reasons. First, Brochert received the suit papers from Krull, so he knew about the lawsuit and did nothing about it. Second, Streff on May 7 told Smith about the lawsuit, and Smith did nothing about it. It is at this point that the district court's analysis falters. The court's focus should not have been on what other people failed to do because those failures cannot be imputed to Feterl. See Flexsteel, 239 N.W.2d at 597-99 (holding that insurer's mistake resulting in default could not be imputed to defendant so as to bar opening of default judgment). The focus should have been on whether the default resulted from a mistake or from Feterl's willfully ignoring the rules of procedure. We think the facts are undisputed that the default resulted from a mistake. Earlier we said that a mistake is an error in action caused by carelessness. The error in action that resulted in the default was Smith's waiting until he received the suit papers that never came before taking action to defend. This error was due to Smith's neglect because he should have followed up his conversation with Streff by making sure a timely answer had been filed or an extension from the plaintiffs' attorney had been secured. The fact that Smith neglected this task and then ultimately forgot about the lawsuit does not, as a matter of law, equate to Feterl's willfully ignoring or defying the rules of procedure. Moreover, we think a finding that Feterl intended to defend is inconsistent with a finding that Feterl willfully ignored and defied the rules of procedure. Feterl is not unlike the defaulting party in Hobbs. 257 Iowa at 131-32, 131 N.W.2d at 777 (reversing district court's denial of defendant's motion to set aside default and default judgment). In Hobbs we said that large enterprises were not required to constantly check to see that papers sent through the regular channels are received and acted upon. 257 Iowa at 132, 131 N.W.2d at 777. Nor did we think the failure to do so amounted to such willful procrastination as to preclude relief from a default and default judgment. See id. Therefore, the fact that Feterl did not follow up to make sure an answer had been filed or an extension had been obtained does not, as a matter of law, rise to the level of willfully ignoring or defying the rules of procedure. 2. Prejudice. Before concluding, we address the district court's finding that the plaintiffs would be prejudiced if the court set aside the default and default judgment. The prejudice the district court found was the harm the plaintiffs would suffer by the delay that would arise from setting aside the default and default judgment and proceeding to trial. This court has indicated that prejudice to the plaintiff should be given some consideration on the question whether to set aside a default and default judgment. See Davis v. Glade, 257 Iowa 540, 545, 133 N.W.2d 683, 686 (1965); Edgar, 256 Iowa at 706, 128 N.W.2d at 925. In both Davis and Edgar, however, this court found no prejudice when the motion to set aside was filed quickly after default judgment and there would be no undue delay of trial on the merits. Id. As the court stated in Davis: It is true absence of prejudice is an important element in these cases. But we are unable to see where such prejudice to the plaintiff has resulted here. The motion to set aside the default was filed within nine days after entry. The court's ruling left the plaintiff unharmed so far as the merits of the case are concerned; he still has his action pending against the defendant exactly as it was before the default was entered. 257 Iowa at 544-45, 133 N.W.2d at 686. We are faced with a similar situation here. Feterl filed its motion a mere seven days after receiving notice of the default judgment. Except for this appeal, plaintiffs' trial on the merits has not been significantly postponed. Nor will the plaintiffs be harmed in prosecuting their case. Nothing has occurred because of the passage of time (two months) between the time the petition was served and the time the motion was argued that would prevent or make more difficult plaintiffs' proving their case. See Horn v. Intelectron Corp., 294 F.Supp. 1153, 1155 (S.D.N.Y.1968) (finding no prejudice to plaintiffs when six months passed between notice of complaint and motion to set aside). Given the brief time period in which a motion to set aside may be filed under rule 236, we doubt whether a delay of trial on the merits resulting from actually setting aside a default judgment should ever constitute any real basis for denying relief from a default and default judgment. Federal courts have held that a potential delay in proceeding to the merits caused by setting aside a default judgment should nevertheless not preclude relief from the default judgment. See, e.g., United Coin Meter Co. v. Seaboard Coastline R.R., 705 F.2d 839, 845 (6th Cir.1983) (Mere delay in satisfying a plaintiff's claim, if it should succeed at trial, is not sufficient prejudice to require denial of a motion to set aside a default judgment.); Feliciano v. Reliant Tooling Co., 691 F.2d 653, 656-57 (3d Cir. 1982) (Delay in realizing satisfaction on a claim rarely serves to establish the degree of prejudice sufficient to prevent the opening of a default judgment entered at an early stage of the proceeding.); Keegel v. Key West & Caribbean Trading Co., 627 F.2d 372, 374 (D.C.Cir.1980) (holding that delay in satisfaction of a claim resulting from setting aside a default judgment is insufficient to require affirmance of the denial of a motion to set aside). The district court also held the plaintiffs would be harmed by losing out on a judgment they expected to carry them into the future. No Iowa case supports this reasoning as a basis for refusing to set aside a default judgment. In fact, as the dissent in First National Bank asserts, a default frequently constitutes a windfall for the party in whose favor the default is rendered because such party might not be able to prevail if the case were heard on the merits. 308 N.W.2d at 3 (Uhlenhopp, J., dissenting). We are not inclined to recognize this expectancy as sufficient to constitute prejudice were relief against the default and default judgment granted. For these reasons we find no substantial evidence to support a finding of prejudice here.